Corn, Ethanol and Food Prices

Here are some resources that discuss the impact of corn and ethanol demand on food prices.

The World Bank, July 2010

“A stronger link between energy and non-energy commodity prices is likely to be the dominant influence on developments in commodity, and especially food, markets. Demand by emerging economies is unlikely to put additional pressure on the prices of food commodities. The effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called ”financialization of commodities”) may have been partly responsible for the 2007/08 spike.”

John Baffes and Tassos Haniotis, Placing the 2006/08 Commodity Price Boom into Perspective. The World Bank Development Prospects Group, July 2010. 

UK Department for Environment, Food and Rural Affairs, January 2010

“The impact of biofuels on the 2007/08 price spikes is often over-stated. Rather, the evidence suggests biofuels were one of the various drivers of demand in years leading up to the spike, but that many commentators are ascribing too much weight to biofuels as a trigger of the spike. Increased demand for cereals as biofuel feedstock (12% in 2007/08) means that both cereal supply and prices are higher than they would otherwise be for any given scenario. Biofuel policy tends to increase the aggregate supply of grains in any given production year and, in principle, this could be a stabilising influence.”

UK Department for Environment, Food and Rural Affairs (DEFRA), The 2007/08 Agricultural Price Spikes: Causes and Policy Implications.

Congressional Budget Office, April 2009

“CBO estimates that from April 2007 to April 2008, the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI). Over the same period, certain other factors—for example, higher energy costs—had a greater effect on food prices than did the use of ethanol as a motor fuel.”

Congressional Budget Office, The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions, April 2009.

Federal Reserve Bank of Kansas City, June 2008

“Marketing costs have risen sharply over the past 50 years, consuming a greater share of the retail food dollar. In 1950, marketing costs (the difference between the farm value and consumer spending for food at grocery stores and restaurants) accounted for 59 percent of total retail food costs. Over the past three decades, rising labor and energy costs have boosted that share steadily, from 67 percent in the 1970s to 80 percent today. … Retail food prices surged in 2007 as prices accelerated for farm commodities, energy, and labor. Another sharp gain is expected for 2008, emerging primarily from foods made from crops. With global food demand projected to rise due to expanding populations and rising incomes, the productive capacity of the agricultural sector will be tested. But, as in the past, stronger agricultural productivity could help keep higher food price inflation at bay.”

http://www.kansascityfed.org/Publicat/mse/MSE_0108.pdf

Texas A&M University, April 2008

“This research supports the hypothesis that corn prices have had little to do with rising food costs. Higher corn prices do have a small effect on some food items. Important food items like bread, eggs, and milk have high prices that are largely unrelated to ethanol or corn prices, but correspond to fundamental supply/demand relationships in the world.”

http://www.afpc.tamu.edu/pubs/2/515/RR-08-01.pdf

U.S. Department of Agriculture, February 2008

“Higher corn prices increase animal feed and ingredient costs for farmers and food manufacturers, but pass through to retail prices at a rate less than 10 percent of the corn price change.”

http://webarchives.cdlib.org/sw1vh5dg3r/http://ers.usda.gov/AmberWaves/February08/Features/CornPrices.htm