Apr 13 2009
“Over the same period [April 2007 to April 2008], certain other factors – for example, higher energy costs – had a greater effect on food prices than did the use of ethanol as a motor fuel.”
That is the finding of a new report from the Congressional Budget Office (CBO), validating what many in the renewable fuels and agriculture community have been saying for a long time – ethanol’s role in food price increases is minimal. Released recently, the CBO report finds that ethanol contributed just “0.5 and 0.8 percentage points of the 5.1 percent increase in food prices” from April 2007 to April 2008.
An analysis done by agricultural economist John Urbanchuk in June of 2007, during the middle of CBO’s timeframe, concluded that rising oil and energy prices had twice the impact on food prices as measured by the Consumer Price Index (CPI) than did ethanol production and the price of corn.
Due to the limitations and scope of the CBO report, it could not factor in the dramatic plunge in both energy and grain commodity prices following the speculation-fueled peaks seen during the summer of 2008. The CBO report also was not designed to take note of the fact that retail food prices have continued to increase or at least remain at near record levels despite these precipitous drops in grain, fuel and other in input costs.
In November of 2008, the Renewable Fuels Association released a white paper “Why Aren’t Food Companies Reducing Prices?” that analyzed the relationship between food prices and the falling prices of energy and grain commodities.
“The impact on food prices of our nation’s push to find renewable alternatives to imported oil is dwarfed by the widespread negative economic impacts of oil itself,” said Renewable Fuels Association President Bob Dinneen. “While ethanol opponents may try to hold up this CBO report as proof of ethanol’s impact on food prices, a close and honest review of the report reveals that many other factors, especially prices for oil and energy, have greater influence over what Americans pay at the grocery store than does ethanol production.”
Additionally, the CBO report noted that ethanol does reduce greenhouse gas (GHG) emissions compared to gasoline. In fact, recent research published in Yale’s Journal of Industrial Ecology found that ethanol can reduce GHG emissions compared to gasoline between 40 and 59%. The full report can be found here.