The U.S. grocery industry says corn and other grain prices will go through the roof if government regulators agree to a higher ethanol blend rate.
American ethanol manufacturers are petitioning the U.S. Environmental Protection Agency to boost the allowable blend rate for their fuel to as much as 15 percent, up from today’s level of 10 percent.
Increasing the amount of biofuel that can be blended into gasoline will boost corn demand and create another acreage battle in the U.S. that will drive up the price of all crops, says a new study commissioned by the Grocery Manufacturers Association.
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“The price of corn and other commodities can be expected to increase dramatically,” said report author Bill Lapp, president of Advanced Economic Solutions.
Ethanol supporters were quick to stamp out the reignited food versus fuel debate.
“Follow the money and consider the facts when critics make the claim that ethanol is responsible for food price hikes,” said Brian Jennings, executive vice-president of the American Coalition for Ethanol.
“The facts remain the same. Food processor margins have more to do with retail food prices than ethanol, corn, market speculation or even rising oil prices.”
Lapp estimates the ethanol industry would consume as much as 57 percent of the U.S. corn crop in a few years, up from 31 percent in 2008-09 if the government approves the 15 percent blend rate and corn area does not increase beyond 92 million acres.
If acreage can increase, corn plantings would soar to 111 million acres by 2012, up from about 86 million acres sown this year.
“To attract this level of corn acreage, the largest in over 60 years, will require the price of corn to rise significantly, potentially well above the record level of $7.50 (US per bushel) recorded during the summer of 2008,” said Lapp in his report.
That would drive up feed costs for the livestock and dairy sectors resulting in higher beef, pork, chicken, turkey, dairy and egg costs.
Higher corn prices would pull up soybean, wheat, rice and durum values, which means consumers would be paying more for food items like vegetable oil, wheat flour, rice and pasta, according to the grocery lobby study.
Canadian grain industry analyst Brian Clancey said if U.S. corn prices rise as high as the grocery industry is forecasting, there is no doubt it would drive up grain prices in Canada.
“Other crops have no choice but to follow, otherwise they will not be grown.”
Higher U.S. corn, soybean and wheat prices would directly influence Canadian barley, canola and wheat prices, which in turn would pull up other crops grown in Western Canada, said Clancey.
Rick Tolman, chief executive officer of the U.S. National Corn Growers Association, said the Grocery Manufacturers Association is spending more money bashing corn than consumers are paying in increased food bills.
“Not a very constructive investment unless their ultimate goal is to trounce corn prices back to the stone age and drive family farmers out of business,” he wrote in response to the GMA study.
Tolman noted that even though corn use for ethanol rose 40 percent last year and corn supplies were tighter than expected, the price of corn dropped.
The U.S. Congressional Budget Office found that from April 2007 to April 2008, ethanol’s use of corn contributed less than one percentage point to the 5.1 percent rise in food prices during that period.
The Food and Agriculture Policy Research Institute has determined that approval of a 15 percent blend would increase corn prices by a mere four cents per bu. and cause no increase in consumer food expenditures.
Tolman said the GMA study is not peer-reviewed and is predicated on the false assumption that a 15 percent blend would be mandatory, when it is only being proposed for markets where it would make sense.
“It is not a broad mandate but an allowance,” he said.
The study assumed corn yields would increase by 1.7 percent per year, which is equal to the rate of gain during the past 10 and 20 years.
Tolman disagrees.
“The real experts say we are on the precipice of yield growth heretofore unseen by man,” he said.
The Renewable Fuels Association added to the debate, saying consumers are paying less for their groceries today than they were six months ago, according to the latest Consumer Price Index data.
“This decrease comes amid increased production and use of ethanol, often the scapegoat of choice by food manufacturers and meat processors when grocery prices rise,” said the association in a June 17 news release.
