NEW REPORT KNOCKS THE STUFFING OUT OF ‘FOOD VS. FUEL’ TURKEYS

Some interesting data on the correlation between increasing amounts of corn used for ethanol and food prices.  You may remember that corn was blamed for the increase in food prices several years ago and the ag industry responded that food prices were much more tied to fuel prices than commodity corn.  

Turns out, we were right.

New Report Knocks the Stuffing out of ‘Food Vs. Fuel’ Turkeys

Millions of Americans preparing for Thanksgiving next week are undoubtedly noticing that dinner will cost less than it did a year ago. According to the U.S. Department of Agriculture, overall grocery prices are roughly 2% lower than at this time last year, and prices specifically for poultry products — like turkey — are down 1.5% compared to last fall. Meanwhile, the amount of corn used for fuel ethanol is primed to set a new record in 2016, up roughly 3% from last year.

The Renewable Fuels Association (RFA), which released an independent analysis today on the impact of ethanol on food prices, says the current collision of falling food prices and record ethanol production should end the contrived “food vs. fuel” debate once and for all.

The new statistical analysis, conducted by Informa Economics IEG, retrospectively examined the effect of ethanol expansion on food prices, concluding that “…retail food prices were not impacted in any demonstrable way by expansion of U.S. grain ethanol production under the Renewable Fuel Standard (RFS) over the past decade.” In fact, the study finds that food price inflation has actually slowed during the “ethanol era.”

The analysis shows that growth in food prices slowed cons10% ethanoliderably after passage of the RFS2, with prices for groceries advancing at roughly half the rate seen prior to the program’s adoption. “Prior to the passage of RFS2, food away from home [e.g., restaurants] grew at an average of 3.4%, versus 3.2% for food at home [e.g., groceries]. After RFS2, food away from home grew at 2.6%, versus 1.8% for food at home,” the study found. “The increase in the food [consumer price index] actually decelerated as the usage of corn in ethanol production increased dramatically.”

The study also examines the impact of ethanol on corn prices, and in turn the impact of corn prices on retail food items. While the authors conclude that corn prices were positively impacted by ethanol expansion, higher corn prices did not necessarily translate into higher consumer food prices.  “Statistical analysis shows that the link between corn prices and overall food prices has been weak,” according to the report, adding that changes in food prices are primarily driven by “…the costs of transforming farm products to retail grocery products, along with transportation and distribution at various levels of the supply chain.” The analysis shows that only 19% of consumer spending on food pays for the value of the farm commodities, with the remaining 81% paying for “…post-farm-gate activities (e.g., transportation, processing, marketing).”

Other factors that drive farm commodity and retail food prices were examined, with Informa concluding that core inflationary pressures, weather events (e.g., flooding and droughts), exchange rates, and energy prices all impacted commodity and food prices over the past decade. In fact, from 2009 to 2014, the impact of crude oil prices on consumer food price inflation was nearly nine times greater than the impact of corn prices.

View the analysis here.

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