Understanding Food Price Increases

In General by Ken

CBO Chart

Sometimes, it takes a graphic to understand things. Recently, the Congressional Budget Office came out with a report that said ethanol demand was responsible for 10-15 percent of the increase of the price of food. That means ethanol raised food prices by up to 0.8 percent. For every food dollar, that is an increase of less than one cent.

I created the graphic above on MS Excel and PowerPoint. It is to scale. Increase A represents the food price inflation that was due to other causes than ethanol and corn. Increase B, the green sliver highlighted by the green box, represents the amount of food price increase due to ethanol.

Here’s what the CBO says. I am highlighting the last sentence because that is what ethanol critics for some reason cannot read:

“CBO estimates that from April 2007 to April 2008, the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI). Over the same period, 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.”