Point 1: Ingredient Cost

Question: How much does the corn in a $3 box of Corn Flakes cost if the corn sells at $2 per bushel?

Answer: 2.2 cents or 0.7% of the cost. Next Question: What if the corn costs $4 per bushel? Answer: 4.4 cents or 1.5% of the cost.

The Point: The cost of the corn ingredient in this “corn intensive” product is less than 1.5% of the cost, even at the high end of corn costs. The raw material in many products is a very small portion of the cost paid by the consumer, especially in processed foods. The rest goes toward marketing, labor, packaging and transportation.

Point 2: Transportation Costs

Rising energy costs for transportation, operating farm equipment, and producing agrochemicals has had a significant impact on the cost of producing food. So, is there is a food versus fuel issue, yes, but it’s related to the cost of crude oil, not corn! In fact, the price of corn correlates very strongly with the price of crude, as shown below by the USDA:

Sources: U.S. Department of Agriculture, Corn Price Average, 1950-2007; Energy Information data available at the Energy Information Administration.

So, how did corn-ethanol become the scapegoat for grocery price increases when it is actually crude oil that is the single most significant driver of both grocery and corn cost? Good question. If you would really like to understand this complex dynamic make sure you read the 6th attachment below: Big Oil v. Ethanol

Point 3: What is the Correlation between Grocery Prices and Corn Costs?

There isn’t one. This is factually proven with historical data in the 1st attachment below: Retail Realities: Corn Prices Do Not Drive Grocery Inflation. Again, if you would really like to gain some insight on the complex dynamics behind the mis and disinformation so commonly hyped in the mainstream press then read this paper and the one recommended above. Some key points include:

“Food & Water Watch’s examination of historical farmgate and retail price trends disproves the allegation that there is a causal relationship between farmgate prices and retail grocery prices. In fact, in many cases there is not even a correlation between farm prices and grocery prices – in some cases corn prices increase and some meat and milk prices have declined. In other cases, corn prices fall steeply and some meat and milk prices continued to rise.”

“The prices of some foods without corn inputs are rising even faster than for corn-fed livestock-related foods. By mid-2008, fish and seafood prices are anticipated to rise 3.5 to 4.5 percent and fresh fruit and vegetable prices are expected 3.0 to 4.0 percent.”

“Additionally, harsh weather conditions, especially the late 2007 freeze and protracted drought in the Western Plains, have contributed to rising food prices.”

“Milk and meat companies may be using the 2007 corn price increase as their scapegoat to raise grocery prices, but these price hikes may merely fatten their bottom lines, rather than compensate them for higher input costs.”

“Instead, the retail prices of meat and milk that rely on corn feed have had little relation to the farmgate price of corn. Whether the price of corn rises or falls, the price of meat and milk has generally trended upwards. This reflects the sticky pricing of retail food products – prices may rise when costs increase but they do not fall when the cost of inputs falls.”

Point 4: Do we have the capacity to produce animal feed, human food and fuel?

The US Department of Energy and Department of Agriculture thinks so. In their extremely well done report they conclude:

“From agricultural lands, the United States can produce nearly 1 billion dry tons of biomass annually and still continue to meet food, feed, and export demands.”

In a paper, The Impact of Ethanol Production on Food, Feed and Fuel, some further perspective is offered:

“For more than three decades, critics have tried to cast ethanol as a “food versus fuel” argument. The marketplace is a better indicator of grain supply and demand—and statistics simply don’t bear out the dire predictions of those who say we must choose between fueling our cars and feeding people. We can do both—and we are.”

“U.S. corn farmers have the potential to produce 15 billion to 16 billion bushels annually by 2015— perhaps as much as 18 billion bushels. Of this crop, one-third could be used in ethanol production— providing enough corn for 15 billion to 20 billion gallons of ethanol. That would leave a minimum of 12 billion bushels for feed, food and export markets—up from 9.5 billion bushels in 2006.”

“Ethanol critics routinely overstate how much corn is actually consumed as human food. Less than 12% of the nation’s field corn crop is processed directly into human food products in the United States.”

“Ethanol critics also question the wisdom of growing fuel instead of food, but corn (field corn, not to be confused with sweet corn) is used mostly for livestock feed and for products such as beverage sweeteners, rather than direct human consumption. As the largest U.S. agricultural crop, it is generally in surplus, requiring price supports, so to whatever extent ethanol supports corn prices, taxpayer costs are reduced.”
- Net Energy Balance for Bioethanol Production and Use, US Department of Energy

*In 2006, Uncle Sam gave corn farmers $8.8 billion in subsidies. Thanks to high corn prices, subsidies are expected to drop to $2.1 billion in 2007.” -NEBC

Point 5: Are US Corn Prices Causing Third World Hunger?

“While there has been much in the media on this issue [of rising tortilla prices in Mexico], no one in Mexico is pointing fingers at the United States…They recognize that this is a supply issue coupled with a political situation in Mexico.”
– Chris Corry, USGC Senior Director of International Operations, quoted in Ethanol Monitor, Feb. 2007.

“Corn prices have little impact on food availability in the third world. The United Nations’ Food and Agriculture Organization reports that food availability per capita is at an historic highThird world food shortages are largely due to political and social issues such as poverty, government corruption, and inefficient distribution.”
–NorthEast Biofuels Collaborative, NEBC.org

Summary

We believe both corn and cellulosic based ethanol are part of the path towards our long term goal of energy independence and our shorter term goal of a more secure energy future. Corn based ethanol is what is feasible now and we are optimizing our plants in every imaginable way, through practical application today. We operate one of the most energy efficient plants in the entire ethanol industry and are willing to prove it with an open book energy audit.

The supporting attachments provide further thoughtful analysis, great attention to detail, authoritative sources and, most importantly, substance. They include very well done third party research papers that can help us advance and resolve the debates rationally. As you read through this information you will see that these issues are extremely complex. Forming an opinion requires science, reason and intuition. Even if you just read the summary for these papers, you will gain some valuable insight, which will feed your intuition.

Our hope is that you will take advantage of the information we have worked hard to provide, independently form your own opinion, based on substance, and then join us as vocal supporters on the path to a more secure energy future for our children and the generations to come.

Back to: ethanol: facts • fiction • valid debate


Citations and References:

1. Retail Realities: Corn Prices Do Not Drive Grocery Inflation
    Food & Water Watch
    August 2007

2. Food vs. Fuel: No Conflict
    New Fuels Alliance

3. The Impact of Ethanol Production on Food, Feed and Fuel
    Ethanol Across America
    Summer 2007

4. The Relative Impact of Corn and Energy Prices in the Grocery Aisle
    John M. Urbanchuk
    Director, LECG LLC
    June 11, 2007

5. Food and Fuel
    POET, LLC

6. Big Oil v. Ethanol
    The Consumer Stake in Expanding the Production of Liquid Fuels
    Mark Cooper, Director of Research
    Consumer Federation of America
    July 2007

7. Biomass as Feedstock for a Bioenergy and Bioproducts Industry
    The Technical Feasibility of a Billion-Ton Annual Supply
    U.S. Department of Agriculture
    April 2005