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Ethanol prices could push food prices higher warns USDA

Sunday, March 4th 2007 - 21:00 UTC
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Ethanol will devour 50% more corn this year, eating into the food industry's share of the crop, anticipated the United States Agriculture Department. From breakfast cereal to beef to beer, competition from ethanol could raise prices for all kinds of foods.

People don't eat the kind of corn that makes ethanol, but cows, pigs and chickens do. And people eat other grains that will become less plentiful as farmers plant more corn. Demand for ethanol is pushing feed prices higher and enticing farmers to switch from other crops. US farmers are expected to grow a record 12.2 billion bushels of corn in 2007, said Keith Collins, the department's chief economist. An estimated 3.2 billion bushels will go into ethanol, up from 2.15 billion in 2006. "Even with that increase, we think production will fall short of demand," Collins said during the department's annual Agriculture Outlook Forum. Agriculture Secretary Mike Johanns downplayed any impact on food costs, saying the department anticipates increases of 2 to 3% every year. "It can be a dozen different factors from farm to table that can impact that price," Johanns said. The chairman of the US House Agriculture Committee said higher food prices aren't all bad. "Frankly, we have been under pricing our food in this country," said Rep. Collin Peterson, D-Minn. "What this fuel thing is going to do is cause us to re-price our food to some extent. So consumers are going to pay more, and in my opinion, they should be, because we've been subsidizing them." Outside the U.S., rapidly growing demand for ethanol could worsen hunger in developing countries, said Greg Page, president and chief operating officer of Cargill Inc., a leading ethanol producer. Using more crops for fuel puts more pressure on supply and demand, raising the cost of food, he said. "We as leaders should be asking, 'What prices are we prepared to make the world's poor pay for food?' " Page said. At the forum, executives questioned whether the industry can meet President Bush's goal for renewable fuels such as ethanol and biodiesel. Bush wants to require the use of 35 billion gallons of renewable fuels by 2017, a fivefold increase above current requirements. Patricia Woertz, president and chief executive of Archer Daniels Midland Co., the country's biggest ethanol producer, said she expects breakthroughs in use of crops besides corn for ethanol, although not necessarily enough to reach 35 billion gallons. "We know the future of energy is not in a single feedstock or even a single product," she said." Some say the Agriculture Department may be underestimating demand for corn from ethanol plants this year. While the department says 3.2 billion bushels of corn will go into ethanol, the American Farm Bureau Federation anticipates it will actually be 3.5 billion bushels.

Categories: Economy, International.

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