Ethanol proponents are wondering what happened to the food versus fuel debate in the wake of plunging commodity prices.
This spring and summer, the U.S. food industry lobby tried to convince politicians and consumers that high food prices were inextricably linked to soaring agricultural commodity prices created by ethanol demand.
In June, the Grocery Manufacturers Association pressed for “urgent congressional action” to examine biofuel taxes and subsidies in light of the food crisis.
The group had high-level support from Texas governor Rick Perry, who asked the U.S. Environmental Protection Agency to grant a 50 percent waiver from its renewable fuel standard. His request was denied.
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A number of humanitarian groups also blamed biofuel for food price inflation caused by $7.88 US per bushel corn, $16.31 per bu. soybeans and $12.80 per bu. wheat.
Commodity prices have tumbled since those summer spikes. Last week, corn was $4.05 per bu., soybeans had fallen to $9.28 and wheat had plummeted to $5.76.
“The question to the food companies who attacked the ethanol industry is, ‘what is the real factor that determines price?’ Because clearly it’s not the ethanol industry and the price of corn,” said Matt Hartwig, spokesperson for the U.S. Renewable Fuels Association.
“Food prices should be lower today and we’re not seeing that.”
The association has produced a white paper in which it argues it was never responsible for food price inflation, noting that, on average, farm commodities account for 20 cents of every dollar spent on retail food, with the remaining 80 cents spent on other costs such as transportation, processing, packaging and labour.
It claims rising oil prices were one of the biggest culprits behind soaring corn prices, noting economists at Purdue University concluded higher oil prices were responsible for 75 percent of the increase in corn prices.
Market speculators were the other big contributing factor. Financial publication Barron’s said index funds and commodity pools accounted for 60 percent of bullish positions in all commodities by the end of March.
In mid-February, speculative index funds, hedge funds and commodity pools held nearly 484,000 long positions in corn futures on the Chicago Board of Trade. By early October those non-commercial investors held less than half that amount.
“The speculation-fueled increase in agriculture commodity prices in the spring and early summer occurred in conjunction with a pronounced rise in retail food prices, leading critics to rashly assume that the two trends were tightly related,” concluded the Renewable Fuels Association in its Oct. 15 report.
“However, food prices have remained at elevated levels despite a dramatic drop in grain and oilseed prices over the past several months, proving that many other factors are behind today’s elevated food prices.”
Hartwig said it proves that the arguments made by the food industry this summer were bogus. He is dismayed the media doesn’t appear nearly as interested in that story.
