Corn and Food Prices: For the Record (4-17-08)

On Wednesday, the Grocery Manufacturers Association (GMA) distributed a statement about the Department of Labor’s report on increases in the Consumer Price Index. The GMA laid the blame for the increase in food prices squarely on the shoulder of corn growers and ethanol producers, ignoring several key facts – especially the fact that the rate of increase in consumer food prices has been declining over the past three months.

Also, the portion of the food dollar that goes to farmers has decreased sharply over time. More of what consumers spend on food (approximately 80 cents on the dollar) goes to non-farm costs such as energy, packaging and labor.

And corn as a food ingredient is relatively inexpensive, According to the U.S. Department of Labor, for example, an 18-ounce box of corn flakes breakfast cereal only contains about 12.9 ounces of milled field corn, which costs approximately 6 cents at the current price of $4.30 a bushel. And it takes approximately 2.6 pounds of corn to produce a pound of beef, the livestock industry tells us, representing 22 cents of the total cost.

What do this all mean? When the price of corn goes up because of higher demand, there is little impact on overall food prices. The GMA would make better use of its time tackling the other part of the food bill that has increased the most – higher energy costs.

And this is where ethanol comes in handy. Not only is ethanol helping reduce the price of gasoline, according to the Consumer Federation of America, but it has extended gasoline supplies and mitigated what might otherwise be remarkably higher prices for fuel. One economist has said that ethanol has helped keep the price of gasoline lower by up to 15 percent, which saves consumers as much as $68 billion a year.

Worth Reading:

USDA: Corn Prices Near Record High, But What About Food Costs?
Federal Reserve Bank of Kansas City: What is Driving Food Price Inflation?
Texas A&M University Agricultural and Food Policy Center: The Effects of Ethanol on Texas Food and Feed
Consumer Federation of America: Rising Gasoline Prices

Not Worth Reading, But Inserted Here for the Record:

Grocery Manufacturers Association Statement