Food and Fuel America.com

Saturday, October 6, 2007

Diane Rehm Learns Oil Is Driving Up Food Prices

During a recent Diane Rehm radio show on National Public Radio, Diane Rehm and her listeners heard from experts about major factors driving up food prices in the supermarket

The three experts, Wall Street Journal reporter Lauren Etter, Washington Post special correspondent Dan Morgan, and Iowa State economics professor Bruce Babcock, explained that the growing middle class in Asian and Latin American countries, higher oil costs and the low value of the American dollar are responsible.

The increasing prices for corn and wheat were minor factors compared to growing worldwide demand, high oil prices and other costs.

Foreign Demand and Weak Dollar

DIANE REHM – We’ve been talking about the rise in corn prices, production of ethanol and the extent to which farmers are benefiting from that kind of production but I wonder about the increase in food prices Lauren and to what extent can that be attributed to a rise in number of people who are both willing and now able to pay higher prices for food -- people in developing countries for example?

LAUREN ETTER: This is obviously a major component and this has been a very hot topic of debate – people on ethanol side saying its unfair to blame corn prices and ethanol on rising food prices largely because there is this growing middle class in countries across Asia and Latin America that are becoming more affluent. So as they become more affluent they are consuming more meat more milk which takes grain –A beef cow roughly it takes roughly six pounds of grain to take on one pound of weight so literally with the livestock population tripling over the last few years that translates into an increase in demand and also with low dollar right now makes our exports more attractive. So you have a lot of factors going on that are contributing to increased food costs.

Minor Role of Grain Costs

DIANE REHM: Dan Morgan.

DAN MORGAN: Just to put food price increase in perspective, have to remember that commodity prices in this country haven’t increased much really over the last 20 years. If adjusted for inflation would be lower than they were 20 years ago. We’re seeing a little bit of what we saw in oil market – a resetting – finding a new level – It’s not at all surprising. Also we have to remember that the commodity share of food goods we buy in the stores declined drastically in last 15 or 20 years. When you buy a loaf of bread how much wheat is really in that loaf of bread or how much corn is in the coca cola we drink– corn syrup goes into coca cola? How much is really chargeable to the commodity and how much due to packaging costs and transportation costs and all these other things? That’s [commodity percentage] actually decreased from 33% to 20% over the last fifteen years.

High Oil Costs are Driving Up Food Costs

DIANE REHM – Bruce Babcock – what about the price of oil? To what extent is that contributing to the overall price in food prices?

BRUCE BABCOCK: I did a couple of calculations -- crude oil prices are up about 60% over the last two years, gasoline prices up 50% diesel up more than 50% and if you look at the share of the retail food dollar accounted for by energy prices relative to commodity prices, I think that energy prices would probably have a greater share – so if you actually increase energy prices by 50% or 60& that’s going to have a bigger impact on the price of food than higher commodity prices. And I agree with Dan that the share that commodities account for in terms of consumer food dollar is a relatively low number – higher with meat and dairy products – but most of the fruit and vegetables, beverages, things like that the share is small – energy, labor, marketing, retail, rent – all those account for much more than commodity prices. (emphasis added)

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Friday, October 5, 2007

Oil Prices and Weather Driving Up Food Costs

Acting USDA Secretary Chuck Conner who recently spoke out in defense of US farmers and domestic ethanol production, told another audience this week that ethanol fuel is getting too much of the blame "for what's happening in grocery store aisles."

High oil prices and weather problems have raised food US food prices this year. Increased production of corn-based ethanol has had an impact but not as much the head of the Agriculture Department said Tuesday.

Increased ethanol production is a goal of President George W. Bush's administration as well as the US Congress.

Food prices have increased about 2.7 percent in each of the last three years. A jump between 3.5 percent and 4.5 percent is expected this year before lowering to between 3 percent and 4 percent in 2008, Conner said at a conference hosted by the Renewable Fuels Association.

Increased demand in Asia and elsewhere and droughts in Australia, as well as rising demand in China and elsewhere drove up up food prices. And the recent record highs for retail oil prices also add to inflation by increasing the costs of everything from packaging to transportation, Conner said.

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Thursday, October 4, 2007

Iowa E85 Sales Up 40%

The Iowa Renewable Fuels Association (IRFA) recently announced that E85 sales in Iowa continued to grow in the second quarter of 2007.

Sales of E85 in Iowa reached 800,491 gallons during the second quarter of 2007, a 40 percent increase over the same time period in 2006.

According to Monte Shaw, IRFA Executive Director:

“As ethanol prices moderated from temporary highs in 2006, consumers flocked to E85. Since the 2nd quarter, ethanol prices have continued to go lower while gasoline prices have continued to increase on the wholesale market. So we anticipate strong growth for the 3rd quarter as well. The number one challenge right now is consumer access. Hopefully these exciting numbers will convince more retailers that E85 is the right thing to do.”

Iowa has become the leader in renewable fuels production with 29 ethanol refineries with the capacity to produce nearly 2 billion gallons annually. There are 18 ethanol refineries under construction or expansion that will add nearly 1.4 billion gallons of annual capacity.

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Wednesday, October 3, 2007

10 Years of Cleaner Air and Greater Energy Security in Minnesota

It's been ten years since Minnesota's landmark legislation required virtually all gasoline sold in the state to contain a 10 percent blend of ethanol to help the gasoline burn cleaner and to help build its market for fuel ethanol.

Today state officials and local advocates are calling the ethanol-enriched fuel -- known as E10 -- a huge win for the environment, statewide economic development and for moving Minnesota, a state with no fossil fuel resources of its own, toward energy independence.

In the 10 years since the E10 mandate took effect, Minnesotans have conserved upwards of 2.5 billion gallons of gasoline, enough to replace the entire state fuel supply for one year."In the 1990s, the Twin Cities was designated by the U.S. Environmental Protection Agency (EPA) as being in non-attainment for carbon monoxide pollution," said Tim Gerlach, vice president for clean fuel and vehicle technology for the American Lung Association of the Upper Midwest. "Ethanol-blended gasoline was one important tool Minnesotans have used to combat and to eventually come back into attainment."

"As successful as E10 has been, higher blend ethanol fuels such as E85 may provide us greater benefits for reducing tailpipe and greenhouse gas emissions as well as reducing petroleum use." Gerlach said. "We need a multi-faceted approach to keeping our air clean and healthy, including wider use of biofuels, mass transit, hybrid-electrics and simply driving and using less."

“Back in the 1990s, there were a lot of people, incited by groups whose main concern was to protect oil company interests, who said the sky would fall if we allowed a ten percent ethanol mandate to become law,” said Valerie Jerich, who, as a lobbyist for ethanol supporters in the ‘90s, took on the dozens of lobbyists assembled by oil interests to thwart the legislation. “They said ethanol would cause vehicles to stall, fuel prices to increase and small engines to blow up. Opponents even tried to stir up the public by saying ethanol would cause jets to fall out of the sky, when they knew perfectly well ethanol was never slated to be blended with jet fuel. Obviously, none of that happened.”

Advocates point out that the objections raised by anti-ethanol forces in Minnesota ten years ago are the same canards used today to try to stop gasoline from losing market share in other parts of the country. “If folks in other states would come to Minnesota, they would see for themselves how none of those dire predictions came true,” said Gerlach. “Instead, what has happened is that with the help of ethanol and other tools at our disposal, we’re now consistently meeting air quality standards while we’re replacing ten percent of fuel that would normally come from outside our borders with cleaner renewable fuel we grow right here in our state.”

For more information on E10, E85 and other ways to reduce air pollution, visit http://www.CleanAirChoice.org

Source: American Lung Association of Minnesota and the Minnesota Corn Growers Association

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Tuesday, October 2, 2007

Clean Cities Program Saves Gas

According to a new report, the Clean Cities Program saved 375 million gallons of gas in 2006

The Clean Cities program addresses the challenge of moving the United States away from the infrastructure and practices that contribute to dependence on imported petroleum and toward energy independence and security.

Clean Cities coalitions around the nation displaced the equivalent of 375 million gallons of gasoline in 2006, according to a recent report from the U.S. Department of Energy's (DOE) National Renewable Energy Laboratory (NREL). The amount of gasoline displaced in 2006 was 50 percent more than the 250 million gallons in 2005.

Clean Cities coalitions are on track to reach 3.2 billion gallons of gasoline displaced in 2020, exceeding their established goal by 700 million gallons.

According to the report:

Seventy-one percent of the 2006 gasoline displacement came from the use of alternative fuels. Thirty percent of that was from the use of compressed natural gas, mostly in heavy-duty vehicles.
The use of E85, a blend of 85 percent ethanol and 15 percent gasoline, grew substantially in 2006, largely because the number of E85 stations doubled – from 436 to 995 – in the year. E85 accounted for 24 percent of gasoline displacement from alternate fuels in 2006.

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Monday, October 1, 2007

"Kernels of Truth" Spreads Truth About Food Costs

A new effort helps answer the question "Is the price of corn the cause for higher food costs?"

The answer appears to be "No".

The new effort by the South Dakota Corn Utilization Council dispels the myths surrounding the "food vs fuel" debate and intends to reach consumers, retailers, and media about the positive effect corn has on the economy.

The Kernels of Truth initiative presents the facts concerning the role corn plays in food and fuel prices. Examples show that corn costs represents only a small fraction of the final retail price of food:

6 cents of corn in a gallon of milk
19 cents of corn in a steak
26 cents in a pork chop
6 cents of corn sweetener in a liter of soda
4 cents of corn in a box of corn flakes
Cereal, snack products and beverages use less than 3% of the US corn supply
Ethanol production reduced gasoline prices by 45 cents per gallon
Without ethanol, food prices would go up

As we've shown here on Food and Fuel America.com, higher energy, marketing and labor costs are the biggest drivers in increased food costs and consumer goods.

The American Petroleum Institute (API), often critical of efforts to promote renewable fuels, apparently now agrees that the high price of oil is the chief cause. In this media quote from the Argus Leader, their chief economists appears to confirm it:

Rayola Dougher, senior economic analyst for API, echoes Martin that corn is no longer the culprit. "This year, it's $80-a-barrel crude oil. That's what's moving the market today."

More information on the "Kernels of Truth" corn food facts can be found HERE.

Source: South Dakota Corn Utilization Council

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September 2007 Articles

September 2007
Food and Fuel America
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Be sure to check out these articles which appeared during the month of September, 2007 on Food and Fuel America.com: