You know the drill. You encounter a friend at the bank, or a ballgame or after church. After swapping howdies, the topic of rising living costs comes up. Then your buddy drops the e-bomb. "If we weren't using all our food for fuel, we wouldn't be in this mess,” he says. You silently grit your teeth and wish you had a good comeback.
It wasn't long ago that everyone and their sister seemed to think alternative fuels were the best thing sliced bread. Then sliced bread and most of the rest of the stuff we gather at the grocery store started to cost more. Suddenly biofuels and farmers who grow the grain to make them seemed to be the bad guys in a full scale food versus food debate.
So exactly what do you say to your city brethren or the local news media when they quiz you on the economics of ethanol and biofuels?
Recent studies have demonstrated that the price of oil - not corn prices or ethanol production - has the greatest impact on consumer food prices because oil is integral to virtually every phase of food production, from processing to packaging to transportation.
Informa Economics finds a comparatively "weak correlation” between corn prices and overall food costs. In fact, just 4% of the change in the food Consumer Price Index (CPI) could be attributed to fluctuations in the price of corn, according to the economic think tank.
Rising oil prices has twice the impact on food prices as does the price of corn, according to analysis of food, energy and corn prices conducted by John Urbanchuk, director and economist specializing in agriculture and biofuels for the global consulting group, LECG, LLC. "A 33 percent increase in crude oil prices – the equivalent of $1.00 per gallon over current levels of retail gasoline prices – would increase retail food prices measured by the CPI for food by 0.6 to 0.9 percent. An equivalent increase in corn prices – about $1.00 per bushel over current levels – would increase consumer food prices only 0.3 percent,” says Urbanchuk.
Here are some other facts you can use to defend your pro-biofuels position:
- Numerous cost factors contribute to retail food prices. According to USDA, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer food dollar. In fact, just 19 cents of every consumer dollar can be attributed to the actual cost of food inputs like grains and oilseeds.
- The ethanol production process produces not only fuel but valuable livestock feed products. Every 56-pound bushel of corn used in the dry mill ethanol process yields 18 pounds of distillers grains, a good source of energy and protein for livestock and poultry. Similarly, a bushel of corn in the wet mill ethanol process creates 13.5 pounds of corn gluten feed and 2.6 pounds of high-protein corn gluten meal, as well as corn oil used in food processing.
- Ethanol production utilizes only the starch portion of the corn kernel, which is abundant and of low value. While the starch is converted to ethanol, the protein, vitamins, minerals and fiber are sold as high-value livestock feed (distillers grains). Protein, which is left intact by the ethanol process, is a highly valued product in world food and feed markets. Aside from preserving the protein, a considerable portion of the corn's original digestible energy is also preserved in the distillers grains.
- Distillers grains displaces corn in feed rations, allowing that corn to be used in other markets. Distillers grains have an average protein content (28 to 30%) that is typically at least three times higher than that of corn, making it a valuable ingredient in livestock and poultry diets. In 2006/07, more than 12 million metric tons of distillers grains were produced by ethanol biorefineries and fed to livestock and poultry.
- The overwhelming majority of U.S. corn, including exported corn, feeds livestock—not humans. There is a popular misconception that corn is exported from the U.S. to feed those in malnourished countries, and thus ethanol use will diminish exports to these countries. The truth is the majority of corn exports are used to feed livestock in developed countries. Importantly, the U.S. ethanol industry is helping to satisfy foreign demand for high-protein, high-energy feedstuffs by exporting more than 1 million metric tons of distillers grains to countries around the world in 2005.
- Ethanol production from other nontraditional sources continues to grow. An increasing amount of ethanol is produced from nontraditional feedstocks such as waste products from the beverage, food and forestry industries. In the very near future we will also produce ethanol from agricultural residues such as rice straw, sugar cane bagasse and corn stover, municipal solid waste, and energy crops such as switchgrass.
Sources: Renewable Fuels Association, National Corn Growers Association and LECG, LLC