Data Also Disproves Food v. Fuel Claims

The Wall Street Journal’s Scott Kilman reported earlier this week on a letter sent by General Mills, the Grocery Manufacturers Association and Kraft Foods to Ag. Sec. Tom Vilsack, asking for reduction of trade tariffs on sugar. From Kilman’s article and the letter, it’s clear that grocery manufacturers are once again trying to distract public attention from their price increases by pointing a finger of blame at biofuels.

Last year, you may recall, Roll Call exposed the Grocery Manufacturers Association’s plan to use the food vs. fuel debate to cover their industry’s price increases.

Kilman writes:

Prices are up because the world is consuming more sugar than farmers are producing. One big factor: The world’s largest sugar producer, Brazil, is diverting huge amounts of its cane crop to making ethanol fuel. Likewise, the food industry has complained bitterly in recent years about the U.S. ethanol industry’s ravenous appetite for corn, which helped push up prices for that key ingredient too.”

Sugarcaneblog provides the real explanation for current, temporary sugar price increases – rain has slowed the pace of harvesting – even while Brazil’s sugar production is up 15 percent this year.

Reuters reporter Brad Dorfman provides much more thorough, clearer analysis on the claims made by the grocery manufacturers:

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
“Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.”

The Consumer Price Index shows that food prices have actually declined a percentage point over the first half of this year, after rapid increases in the past two years. The data also show that the increases in the past year were out of proportion to inflation in other categories.

CPI Percent increase/decrease

2002

2003

2004

2005

2006

2007

2008

2009

Food

1.5

3.6

2.7

2.3

2.1

4.9

5.9

-1.1

Energy

10.7

6.9

16.6

17.1

2.9

17.4

-21.3

14.8

Other Goods

1.9

1.1

2.2

2.2

2.6

2.4

1.8

2.3

Source: Bureau of Labor Statistics.

Neither biofuels nor energy provide a good explanation for increases in food prices.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Even a Congressional Budget Office study requested by Members of Congress who wanted to make a case that biofuels’ were raising the cost of government food programs could only find a 10 percent to 15 percent impact on food prices from biofuels. That study showed that nearly two-thirds of the price increases could not be explained by either biofuels or energy prices.

Of the 5.1 percent CPI increase for food between April 2007 and April 2008, energy had a larger effect than biofuels. But even together, they account for a fraction of food price inflation:

Biofuels

0.5 to 0.8

10 to 16%

Energy

1.1

22%

Other Causes

3.2 to 3.5

62 to 68%

Source: Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” April 2009

So why is GMA resurrecting its campaign to blame biofuels for food price increases? (See also their letter to Sen. Boxer from a few weeks ago.) Likely because it was a very profitable strategy for them last year and it continues to work, at least with half the time.

Land O’Lakes

16%

Kraft Foods

21%

Sara Lee

55%

General Mills

61%

Kellogg Co.

9%

Source: 2020 Project, FoodPriceTruth.org.

CBO Calculates Ethanol’s Impact on Food Prices

According to a newly released Congressional Budget Office report, ethanol contributed between 0.5 and 0.8 percentage points (10-15 percent) of the overall 5.1 percent increase in food prices between April 2007 and April 2008. That estimate is considerably lower than previous estimates. The report also calculated the increase in costs for federal food aid programs, which was the initial reason that Reps. Ron Kind (D-Wisc.), Rosa DeLauro (D-Conn.), and James McGovern (D-Mass.) requested it.

Despite that purpose, the Grocery Manufacturers Association, American Meat Institute, National Turkey Federation and National Council of Chain Restaurants were quick to publicize the report in their anti-ethanol Food Before Fuel campaign.

However, the report leaves a very large question open about the true causes of food price increases. The CBO notes that energy costs contributed another 1.1 percentage points (22 percent) to the 5.1 percent increase. That means that 3.2 percentage points (roughly two-thirds) are unaccounted for. And note, the 5.1 percent rise came on top of 2.5 percent and 4 percent food price increases in 2006 and 2007.

The other cited causes of increased food prices are growing global demand for meat, the depreciation of the U.S. dollar, which made U.S. corn cheaper than overseas corn, and speculation in corn futures due to expected poor harvests and overall hype about demand for corn. Is it possible that ethanol’s impact on food prices is much lower than the impact of certain groups simply raising food prices?

Setting the Record Straight

I was pleased to read AP reporter Deborah Jian Lee’s story on Jan. 12, saying that the food and fuel debate has “receded to a murmur, and even the Grocers Manufacturers Association, one of the most vocal biofuel critics, seems to be backing off a bit.” Biofuel producers will likely remember that last May the Capitol Hill newspaper Roll Call revealed that the Grocery Manufacturers Association had launched a public relations effort to blame biofuels for rising food prices. I asked the question then whether the press would set the record straight, as noted economists and BIO have tried to do throughout the year.
It was interesting to note the comments of the GMA’s Scott Faber, who apparently said ethanol production is “just one in seven sources of commodity price inflation.”

More Biofuels Bashing

Exactly a month ago, Roll Call newspaper revealed that the Grocery Manufacturers Association had launched a PR campaign to roll back U.S. biofuel policy. GMA is once again on the offensive, releasing an industry-funded study that blames biofuels for higher food prices, ignoring the rapid increase in the price of oil that is driving up the costs of agricultural production and increasing demand for alternatives.

Kraft Foods sponsored the recent study by Keith Collins, Ph.D., former chief economist at the USDA. Chief among the study’s conclusion is that “Nearly all of the increase in total use of corn over the past two years has been due to use of corn by ethanol plants, thus most of the corn price increase has likely been due to ethanol.” However, the study contradicts other recent studies, including one that current USDA Chief Economist Joseph Glauber presented to Congress earlier this month.

On June 12, Glauber testified before the U.S. Senate Committee on Energy and Natural Resources on biofuels’ impact on corn and food prices. Regarding corn, Glauber says, “We estimate that the percentage increase in the price of corn from April 2007 to April 2008 would have been 23 percent lower in the absence of any growth in biofuel production in the United States. Based on this analysis (see table below), we estimate that the price of corn would have increased by 47.5 percent assuming no growth in biofuel production in the United States, down from the actual increase of 61.7 percent, from April 2007 to April 2008.

Effects of biofuel production in the United States on global food commodity prices.
  With Biofuels Without Biofuels
  Percentage Change Percentage Change
Food 45.0 40.6
Corn (Maize) 61.7 47.5
Soybeans 78.6 54.2
Soybean Meal 69.3 51.2
Soybean Oil 80.9 61.5

And on the overall price of food, Glauber estimates,

“At this time, the expansion in biofuel production in the United States would appear to be a relatively modest contributor to food price inflation globally and in the United States. Assuming no expansion in biofuel production in the U.S., we estimate the IMF global food commodity price index would have increased by over 40 percent from April 2007 to April 2008, compared with the actual increase of 45 percent. In the U.S., the CPI for all food would have increased by 4.55- 4.60 percent during the first four months of 2008, compared with the actual increase of 4.8 percent, assuming no expansion in U.S. biofuel production.”

Collins’ analysis also claims that “The increase in corn demand due to ethanol is rising faster than growth in corn yields per acre.” He calculates that the year over year increase in ethanol production called for in the Renewable Fuel Standard will require an increase in production of corn by 330 million bushels each year. Last year, corn production in the United States rose to an average of 150 bushels per acre (from 145 in 2006). To gain the additional bushels on the same number of harvested acres (Collins cites 94 million acres) would require approximately a 2.5 percent increase in production.

Since 1996, corn production has increased over 30 percent, due in part to increased adoption of biotech seeds. Biotech companies are confident that the yield increases will continue, making the 2.5 percent annual increase that Collins dismisses out of hand appear quite achievable.

Interestingly, Collins also estimates that the increase in animals that consume grain – food animals including beef, chicken, pork, etc. – increased 5.3 percent between 2005 and 2007. To feed them, Collins notes, required an increase of 325 million bushels of corn, close to the amount estimated as needed for ethanol. However, Collins concludes that the increased grain consumption by these animals “would have a fairly small price effect.”

Part of the plan of the GMA and its allies is to promote state petitions to the Environmental Protection Agency for waivers from the Renewable Fuel Standard, such as the one filed by Texas Gov. Rick Perry (R). However, the study cited by Perry to support his petition for a waiver of the RFS clearly shows that a waiver will not provide the relief he seeks.

The study is by the Texas A&M University Agricultural and Food Policy Center, and it concludes that relaxing the RFS does not result in significantly lower corn prices and corn prices have had little to do with rising food costs.
Overall, the study shows that the underlying force driving changes in the agricultural industry, along with the economy as a whole, is higher energy costs. With rising energy costs, corn and other commodity prices increase.
See also BIO’s recent response to Texas’ petition to the EPA.

A Sustainable Green Revolution

The Washington Post last week called for “a greener revolution” that would restore the world’s ability to feed itself at widely affordable prices. “The next green revolution must be ‘greener’ than the first; it must achieve higher production through the wisest possible application of scarce resources.

The Financial Times of London also called for “a second green revolution” that would help grow more food on the same amount of land. The paper’s editorialist called for richer countries to spend more development aid on helping less developed countries boost agriculture. Specifically, the paper pointed out, “Biotechnology holds the promise of plants that not only resist pests and disease, but convert scarce water and nutrients into food with great efficiency. One of the biggest obstacles to their development and use has been the resistance of European consumers and governments to genetically modified crops.”

At the UN Food and Agriculture Organization’s High Level Conference on Food Security, USDA Secretary Ed Schafer promoted the use of biotechnology to increase production of food. The final declaration adopted at the end of the conference declared, “We urge the international community, including the private sector, to decisively step up investment in science and technology for food and agriculture.” It did not specifically mention biotechnology though. The document does call for “in-depth studies … to ensure that production and use of biofuels is sustainable in accordance with the three pillars of sustainable development and takes into account the need to achieve and maintain global food security.”

There are many efforts to ensure that agricultural production for biofuels meets sustainability goals. See, for instance, the industry-led Council for Sustainable Biomass Production, which seeks to “identify the core economic, environmental, and social issues that must be addressed in working towards a sustainable solution for large-scale deployment of biomass products and crops serving as feedstock for refineries.”

There are also continuing efforts to roll back the biofuels mandates by groups, such as the Grocery Manufacturers Association, who would sacrifice long-term gains in agricultural productivity for short-term gains on food prices. The GMA states that US biofuels policy “is the one factor in the food inflation equation that Congress can actually control.”.

But the USDA has made clear that opportunities to expand technology for agriculture is also something that Congress and the administration can influence.

Will the Press Set the Record Straight?

Last week, Roll Call revealed that the Grocery Manufacturers Association paid for a PR campaign aimed at blaming high food prices on biofuels (call it the ‘vast chicken wing conspiracy’). But since the revelation, there’s been very little effort in the press to set the record straight.
The USDA this week held a press conference to tell reporters the true causes of food price increases. And on Tuesday this week, Michael W. Masters, Managing Member and Portfolio Manager of Masters Capital Management, LLC, testified before the U.S. Senate Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs on whether institutional investors are contributing to food and energy price inflation:

Institutional investors are one of, if not the primary, factors affecting commodities prices today.
“When asked to explain this dramatic increase, economists’ replies typically focus on the diversion of a significant portion of the U.S. corn crop to ethanol production. What they overlook is the fact that Institutional Investors have purchased over 2 billion bushels of corn futures in the last five years. Right now, Index Speculators have stockpiled enough corn futures to potentially fuel the entire United States ethanol industry at full capacity for a year. That’s equivalent to producing 5.3 billion gallons of ethanol, which would make America the world’s largest ethanol producer.
“Turning to Wheat, in 2007 Americans consumed 2.22 bushels of Wheat per capita. At 1.3 billion bushels, the current Wheat futures stockpile of Index Speculators is enough to supply every American citizen with all the bread, pasta and baked goods they can eat for the next two years!”

So, what’s the solution? Purdue Agricultural Economist Dr. Chris Hurt told the Purdue Biofuels Symposium on Sunday May 18:

We must not throw out all the work that’s going on, the tremendous amount of research into cellulose, into increasing the yield ability of corn and the amount of ethanol we can get from that. Our fuel problems aren’t just going to go away. Agriculture needs support over the next several decades. That’s the message we all in agriculture want to get across. We’re into this now. We have huge potential. Let us continue to develop that potential.”

According to Alan Tracy, U.S. Wheat Alliance President, and Ron Suppes, USW Chairman,

Biotechnology is the best and most practical tool available to give the world the boost in agricultural productivity we must have to reduce starvation and environmental degradation. Continued mindless opposition to this applied science will only bring greater misery, poverty and environmental destruction to the world.
“The genetically modified crops now planted broadly across the U.S. require less herbicide and insecticide and consume less of the oil and energy it takes to make such pesticides. (Doesn’t it just make sense to build an insecticide into a plant rather than broadcast one onto the whole field?) Engineered herbicide tolerance brings better weed control, which leads to less tillage, which uses less fuel and preserves both the soil and its capacity to store away carbon. Higher yields mean that less new cropland has to be found to meet the needs of a growing world population. That means less forest and jungle and savannah get destroyed along with their air purifying and carbon storing capacity. Biotechnologically derived saline tolerance is now on the near horizon, meaning that we will be able to reclaim croplands that have been abandoned. Modern biotechnology is roving to be one of the most important environmental advances that agricultural science has ever discovered.”

Roll Call Reveals Who’s Beating Up on Ethanol

Anna Smith of Roll Call today filed a story on how the Grocery Manufacturers Association is “leading an ‘aggressive’ public relations campaign for the past two months in an effort to roll back ethanol mandates that passed in last year’s energy bill.” GMA hired Glover Park Group to run the campaign, Smith writes, based on GMA’s request for proposal and Glover Park’s response.

In its RFP, the GMA outlined a four-part approach: building ‘a global center-left coalition,’ which includes environmental, hunger, food aid, poverty, development, senior, children, business, nutrition, farm consumer and labor groups; taking advantage of the ‘extraordinary earned media opportunities’ caused by rising food prices; mobilizing local food banks and ‘other local opinion leaders in key states and districts’; and hiring ‘trusted third-party experts’ to document the effect of fuel mandates on, among other things, global hunger and poverty, job losses in the food industry, and inflation.

In its 21-page answer, a copy of which was also obtained by Roll Call, Glover Park laid out a hard-hitting plan with two main goals for the campaign.

‘First, we must obliterate whatever intellectual justification might still exist for corn-based ethanol among policy elites. … Second, we must demonstrate to policy makers at the state and federal level that there is a political price to allowing ethanol policy to drive up the cost of food,’ Glover Park wrote.

In order to do that, Glover Park said the campaign must ‘clearly show the direct and irrefutable link between corn-based ethanol policy and the variety of harms caused by that policy, above all food price inflation’ the lobbying and public affairs shop noted, must be that ‘this is a “Now” issue that is fast reaching crisis proportions for American consumers.’

Foodand FuelAmerica.com wrote an analysis, “Big Food’s Big Food Fight Finally Featured.

The Illinois Corn Growers Association also wrote a feature on the revelation, pointing out, “Ethanol is reducing gasoline prices up to 40 cents a gallon right now. So you think an industry that ships its products on average of 1,500 miles to consumers would see the benefits, but apparently the idea of returning to their golden days of $2 corn was too enticing.” The National Corn Growers Association’s CornCommentary blog calls it, “Grocery Manufacturers Association’s paid effort to smack down corn farmers in a bid to justify the high cost of processed foods at the grocery store.”