NCGA: Newest “Research” on Food Prices Doesn’t Add Up (1-24-08)

A professional alarmist’s news release and press conference today regarding corn, ethanol and food prices was met with sharp criticism from the National Corn Growers Association (NCGA) for ignoring the facts and the real culprit in rising food prices.

“If Lester Brown wants to have a real discussion about the marginal increases in food prices last year, he needn’t look any further than the price of a barrel of oil,” said Rick Tolman, NCGA’s chief executive officer. “The price of oil influences the cost of food at every step in the supply chain—from commodity production to processing to packaging to transportation. Higher energy costs also drive up overhead for grocery stores, warehouses and restaurants.”

The Department of Labor reports that U.S. food and beverage prices increased at a rate (4.8 percent) just barely above the rate of general inflation for all items (4.1 percent) in 2007. By contrast, energy commodities surged 29.4 percent in 2007, according to DOL data. While the 2007 rate of food inflation was slightly higher than in recent history, it certainly was not unprecedented. Food inflation was near 6 percent in 1990 and averaged 8.9 percent per year from 1972 to 1981.

Because U.S. corn production levels have increased significantly in the past five years to accommodate increased demand, ethanol production is not diverting corn from food and feed markets, Tolman pointed out. In fact, the U.S. Department of Agriculture projects that more U.S. corn will be fed to livestock in the 2007-08 marketing year than in 2006-07, and corn exports are expected to achieve a new all-time record. This is possible because corn growers produced a record crop of 13.1 billion bushels in 2007, 11 percent larger than the previous record. Approximately 10 percent of the nation’s corn supply will be carried over as surplus in the next year, further indication that all demands are being amply met.

Tolman said that when it comes to food prices, labor costs account for 38 cents of every dollar a consumer spends on food, according to the USDA. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer food dollar. In fact, just 19 cents of every consumer dollar can be attributed to the actual cost of food inputs such as corn. One example: for a 14-ounce box of corn flakes cereal, a $2-per-bushel increase in the price of corn means a theoretical difference of just over 2 cents at the consumer level.