Monday, July 16, 2007

Why Beer Prices Are Higher, A Tale of Two Beer Stories

Beer Mug Food vs Fuel food versus fuelFirst it was beef. Then pork. Then dairy. And tortillas and tequila. Higher food prices must mean corn ethanol is to blame. Well that seems to be the message that the major media and critics of America breaking its dependence upon foreign oil would have you believe. We're waiting for how even "the kitchen sink" price can somehow be blamed on renewable fuels like ethanol.

Now it is beer that will cost you more. All because corn prices have increased. Even if corn isn't even in the beer!

But the true facts show that this incremental cost increase has minimal impact upon food prices. The small amount of corn in most foods means the final cost to consumers is usually just pennies--or even a fraction of a penny per serving, per gallon or per pound of final retail prices. And these costs are usually just an incredibly small percentage of the total food price.

Let's examine two recent media articles on the subject of higher food prices. The first comes from the USAToday/Arizona Republic whose headline screams "That July Fourth Beer will Cost You More". It then goes on to sensationally proclaim:
"Americans hosting Fourth of July barbecues will pay more cold cash for the cold ones this year as beer joins the list of foods and beverages that are seeing their prices jump, in part, because of the booming ethanol market."
It makes this claim because barley, an ingredient in beer, has increased in price because less has been grown this year due to growers planting more corn. The article then goes on later to more accurately explain the true costs of price increases:
"But a variety of other costs are increasing for brewers, including for other grains, glass, cardboard, energy, transportation, insurance and labor."
The reporter added some statistics and showed that barley prices have increased 17% this year. But the inconvenient truth forgotten was, how much does this increase really impact that $5 six pack of beer? The article came up empty with nothing. The true answer is just pennies.

The second article comes from the Denver Post's editorial board. Their opinion piece titled, "Switch to ethanol driving up the price of beer? D'oh!" offers the beer cost fact checking missing from all of the other media reports.

The article reports that Colorado Commissioner of Agriculture John Stump explains the price of agricultural raw materials is just a small fraction of the price of most processed foods. In his more accurate example he shows the real impact of barley price increases:
"the price of barley is now about $4 for a 46-pound bushel. It typically takes about a pound of barley to produce a gallon of beer. Thus, even with today's higher grain prices, the barley in a gallon of beer costs about 9 cents - or roughly a dime for a six-pack of beer that sells for anywhere from $3 to $5 in a package store and far more if the barley is brewed into the kind of "craft beer" featured in Denver brewpubs."
So the TOTAL cost of barley, even with an increase, is just 9 cents out of a $5.00 six pack. For those of you without a calculator, that's less than 2%. OK, let's be precise, 1.8%.

The article then goes on and accurately explains the other cost drivers impacting beer prices:
"state and federal taxes total 66 cents on a gallon of beer produced with just 8 cents' worth of barley." "the cost of labor, energy, transportation, packaging, advertising, taxes, profit and other items far outweigh the cost of the agricultural products in most of the food we eat."
Finally, the article notes that Jay Lehr, science director at the Heartland Institute, says that simplistic claims that the push for more ethanol is forcing food prices upward ignore the reality that much dry distilled grain remains as animal feed once the starch is removed from corn for fermentation.
"A bushel of corn will produce 2.7 gallons of ethanol with 17 pounds of feed left over - enough to create four beef steaks or eight quarts of milk," Lehr reports."

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1 comment:

Michael A. Gregory said...

The inconvenient truth that reporters never seems to uncover during fact checking is that more acres of barley were plants in 2007 than in 2006.

Area Harvested 2006 2,951,000 acres, 2007 3,508,000 acres
Production 2006 180,165,000 bushels, 2007 211,825 bushels

This information can be found from the USDA's November Report.