Sunday, August 12, 2007

New Report Explains Corn, Ethanol and Food Price Increases

A new study by the Center for Agriculture and Rural Development (CARD) at Iowa State University asks, "Do Biofuels Mean Inexpensive Food Is a Thing of the Past?"

The results are informative, especially:
  • In the United States, consumers spend a relatively small amount of their disposable incomes on food....this share in the United States has fallen from 20 percent in the early 1950s to about 10 percent today
  • Across all food consumed, 30 percent higher corn prices increase all average food prices by 1.1 percent.
  • With agriculture being asked to supply an increasing share of U.S. fuel, it follows that food prices will trend upward. For most Americans, though, the higher prices caused by ethanol will hardly be noticeable.

The study also looks at the recent rise in dairy prices and confirms the other factors driving them higher:

The CARD assessment of modest effects on food prices of increased corn prices seems to run counter to what is happening in the supermarket. Milk prices are at an all-time high, while meat and egg prices continue to remain at historically high levels.

If high corn prices are not to blame, what is? The primary cause of high milk prices is that international demand for dairy products has outstripped international supply. The lack of supply is a result of drought in Australia, a drop in subsidized milk production in the European Union, and a lack of profits in the U.S. dairy industry in recent years. Strong world demand is a result of continued strong income growth in China, India, and other Asian countries, and continued strong U.S. demand for cheese. The excess world demand for dairy products has pulled U.S. products onto world markets, thereby raising U.S. prices. Instead of fighting foreign competition, U.S. milk producers are now benefiting from international markets.

Source: Center for Agriculture and Rural Development


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