The World Bank report released earlier this month has gotten quite a bit of media attention lately, especially regarding its concern about biofuels production.
During a press conference with President Bush Tuesday, a reporter said, “The World Bank says about 85 percent of the increase in corn price since 2002 is due to biofuel — increased demand for biofuels.”
Near as I can tell, the World Bank report does not say that. What it does say is, “Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertilizer costs.” It does not attribute a percentage to biofuels production.
What it does say is, “Almost all of the increase in global maize production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses.” What that means is that, as Agriculture Secretary Ed Schafer told farm broadcasters Tuesday, “Only about 25 percent of the corn crop goes into ethanol today and we have been able to stay ahead of that by yield increases.” In other words, our yield increases in the United States have offset the increased demand for corn to make ethanol.
It’s also critical to note that in the World Bank report graph showing expected world food price percentage increases for 2008 compared to 2004 – the biggest increases are in wheat (119%) and rice (101%) – not corn. Rice seems to be a major focus of the world food crisis, yet there appears to be no direct connection between the price of rice and biofuels production.
The World Bank does say that increased bio-fuel production has contributed to the rise in food prices. No one denies that. No doubt that increased corn prices have had an effect on increasing food prices. However, no one seems to know exactly how much. It is nearly impossible to sort out the impact of so many different factors coming to bear on food prices.
In announcing a food crisis task force on Tuesday, United Nations Secretary-General Ban Ki-moon blamed the escalating prices on a range of factors — high oil prices, growing demand, bad trade policies, bad weather, panic buying and speculation, as well as, “the new craze of biofuels derived from food products.”
“In addition to increasing food prices, we see at the same time farmers in developing countries planting less, producing less, due to the escalating cost of fertilizer and energy,” he said. “We must make every effort to support those farmers so that in the coming year we do not see even more severe food shortages.”
That is key to the whole food crisis right there. Supporting farmers in other countries so they can produce their own food. President Bush noted in his press conference today that the US is “deeply concerned about people who don’t have food abroad” and will continue to be generous in food donations. He also suggested a “creative policy – is if we would buy food from local farmers as a way to help deal with scarcity, but also as a way to put in place an infrastructure so that nations can be self-sustaining and self-supporting.”
President Bush noted that the high price of gasoline is going to spur more investment in ethanol as an alternative to gasoline. “And the truth of the matter is it’s in our national interests that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us,” he added.
Regarding food price inflation, one reporter said, “The World Bank says about 85 percent of the increase in corn price since 2002 is due to biofuel — increased demand for biofuels. And your Secretary of State said that — indicated yesterday that she thought that might be part of the problem. Do you agree with that?”
Bush responded, “Actually, I have a little different take: I thought it was 85 percent of the world’s food prices are caused by weather, increased demand and energy prices — just the cost of growing product — and that 15 percent has been caused by ethanol, the arrival of ethanol.”
The president said the United States is concerned about the scarcity of food in poorer countries and will continue to be generous in food donations abroad.
Ken McCauley of White Cloud, Kansas says the figures used in the article published in Sunday’s Kansas City Star, for example, were too vague. He says they didn’t properly represent real data and were spun in such a way to make ethanol a culprit… a culprit of rising food prices, rising gas prices and lower fuel economy.
Laura McNamara was at the Roadrunner Turbo Indy 300 Sunday and did an excellent interview with Ken that you can listen to here:
Ken is pictured here with Team Ethanol Driver Ryan Hunter-Reay, Ethanol Promotion and Information Council Executive Director Toni Nuernberg and EPIC Director of Operations Robert White.
The media seems to be getting the message that rising energy prices are causing food price inflation.
Here is a link to a great piece from CNN on oil and your food bill. It’s an international piece that talks about the situation from both a European and United States perspective.
Best part: this graph showing how food and oil prices have tracked together since the early ’60s. Proof is in the pudding.
Be sure to read and comment on this article today on Seeking Alpha. It is one of the most well-balanced, well-researched reports on the cause of high food prices that I have seen yet.
Asking the question “Does Ethanol Deserve the Blame for Rising Food Prices?” the author rightly discusses the myriad of factors contributing to global food price increases, such as weather, population growth, energy costs and commodity market speculation. Then he says:
Figuring out how much of an impact ethanol and biofuel production has had on rising food prices is hard, if not impossible. If you just went by the headlines, you’d think that the solution to end world hunger is to stop making ethanol.
Best of all, here is how he concludes:
And of course, the introduction of ethanol into the fuel supply isn’t happening on a whim; it’s going to bring down U.S. dependence on foreign oil and will keep prices down. The WSJ reports on how biofuels are keeping oil and gas priced 15% lower than otherwise. And those energy costs have their own tremendous impacts on the actual food industry. So if you imagine a world with no ethanol, who’s to say food prices in developing countries might not be higher?
Great stuff. Thanks to Seeking Alpha for that perspective.
National Corn Growers Association CEO Rick Tolman was honored at the 2008 Agribusiness Leader of the Year for being “a driving force in solidifying demand for corn.”
According to NAMA:
The growing ethanol market is a real win for corn farmers and rural America. Today, ethanol has become a symbol of corn grower success. And it is the efforts surrounding the many successes of corn producers in 2007 that distinguish Rick among his peers.
Growing demand for food in emerging nations, wheat crop failures, currency fluctuation, speculation in the commodities market, hastily conceived government policies, and the growing demand for biofuels have all–among other factors–converged to drive up the price of food, experts say.
Analysts have explained the prices rises as a “perfect storm” of poor harvests in various parts of the world, lower food reserves, growing consumer demand in China and India, global population rises, and changes in the global economy.
Could it be that people are starting to understand? Let’s hope so. Now, let’s stop calling this a CRISIS. Why does everything have to be a crisis? Chances are, no matter what the Wall Street Journal says, this is a temporary situation.
Sometimes the media seems like a teenager. Everything is a crisis and each new crisis is the way it will always be, nothing will change, it will just get worse.
Yet, as we grow older and (hopefully) more mature, we usually learn – this too shall pass.
As crude oil futures rose to a record high near $114 a barrel in trading on Tuesday at the New York Mercantile Exchange, some news reports continue to focus on higher corn prices as the culprit for increased food prices.
But, some of the message seems to be getting through. Many of the reports I have been reading lately have mentioned energy prices first as the cause of higher food prices, which they like to say are experiencing the “biggest increase in 17 years.”
That was 1990, when food price inflation was 5.3 percent.
If you want to read something really interesting, check out Food Marketing Costs – a 1990s Retrospective from USDA’s Economic Research Service. According to that report, consumers spent $618.4 billion on food in 1999, up 37 percent from the $449.8 billion spent in 1990. Seems like a pretty big jump for a decade.
But, if you dig deeper to find out the drivers for that increase, you find that the farm value of commodities only increased 13 percent between 1980 and 1999. On a graph, it looks almost flat. By contrast, the “marketing bill” as the economist call it, literally skyrocketed, up 45 percent, mainly due to increased consumer demand for convenience. Labor costs were up 56 percent, packaging up 39 percent, fuels and electricity up 43 percent, rent up 72 percent – but here’s the biggie – corporate profits up 98 percent!
Think about that the next time you hear the Grocery Manufacturers Association (which happens to represent the world’s leading food, beverage and consumer products companies) complain that corn for ethanol is making food prices higher.
The Grocery Manufacturers Association has been attacking corn and ethanol lately, and one can wonder why. After all, corn and other farm inputs are only a small part of the retail food dollar. High energy costs have a much greater impact on what we pay at the grocery store checkout.
Why, then, does the GMA work openly hand-in-hand with Big Oil to knock us around?
Visit the GMA Web site here (www.gmabrands.com) and see for yourself. Click on the link that reads Public Policy … then on Energy.
Notice something odd? Look at the address bar on your Web browser. You have (quietly) switched over from www.gmabrands.com to a page on www.bipac.net.
All the GMA information on energy comes from BIPAC, which is the Business Industry Political Action Committee. And who runs this group?
Well, here’s the board of directors. A lot of executives from companies like Sinclair, Occidental, Exxon Mobil, Diamond Oil.
On the other hand, there’s not much to disagree with regarding the “official” GMA line on biofuels:
GMA supports the goal of reducing reliance on fossil fuels and believes that biofuels can play an important role. GMA supports the development of sustainable and energy efficient fuel alternatives in a market-based environment. We also support policies that ensure that the country can increase biofuels production without impacting the food industry’s ability to continue to provide reliable and affordable food to the nation and other markets.
Except, of course, the way they interpret the last line. U.S. corn growers have been providing reliable and affordable food for generations … before there was a GMA or a BIPAC.
Guebert details how the late former Agriculture Secretary Earl Butz used a loaf of bread as a visual aid to demonstrate the farmer’s share of the food dollar.
“Farmers don’t set the price of food,” Old Fencerow to Fencerow would proclaim as he unwrapped the bread before an audience. “The market does.”
He’d then move the loaf, slice by slice, from one side of the podium to the other to illustrate what each step of the breadmaking process – flour milling, baking, packaging, transportation, wholesaling, advertising, retailing, labor – cost.
Finally, with just one piece of the loaf remaining, Butz would ask “And the farmer’s share? Well, it’s right here,” he’d reply, waving high the last slice, “and it’s the heel!”
Guebert also notes that the major player in the market when it comes to setting food prices are Mother Nature and Uncle Sam.
So, go ahead and complain about today’s rising food prices. Make sure you point to today’s biggest pushers, though – weather and Washington, not farmers.
What it does say is, “Almost all of the increase in global maize production from 2004 to 2007 (the period when grain prices rose sharply) went for biofuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses.” What that means is that, as Agriculture Secretary Ed Schafer told farm broadcasters Tuesday, “Only about 25 percent of the corn crop goes into ethanol today and we have been able to stay ahead of that by yield increases.” In other words, our yield increases in the United States have offset the increased demand for corn to make ethanol.
In announcing a food crisis task force on Tuesday, United Nations Secretary-General Ban Ki-moon blamed the escalating prices on a range of factors — high oil prices, growing demand, bad trade policies, bad weather, panic buying and speculation, as well as, “the new craze of biofuels derived from food products.”
President Bush noted that the high price of gasoline is going to spur more investment in ethanol as an alternative to gasoline. “And the truth of the matter is it’s in our national interests that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us,” he added.
The recent criticism of ethanol doesn’t sit too well with the chairman of the 
The media seems to be getting the message that rising energy prices are causing food price inflation.
Corn was a winner at the 
If you want to read something really interesting, check out 
Guebert details how the late former Agriculture Secretary Earl Butz used a loaf of bread as a visual aid to demonstrate the farmer’s share of the food dollar.