Food vs Fuel: Enough To Make You Scream

The RFA recently compiled a report that found that corn price fluctuations don't have a significant affect on consumer food prices, writes Bob Dinneen. The food vs. fuel argument is complete and utter malarkey.
By Bob Dinneen | October 21, 2014

Each fall, the Dinneen family approaches the annual pumpkin carving ritual with much enthusiasm. We don’t do typical jack-o-lanterns—that’s too ordinary. No, we prefer to make works of art, adding our own personal touch. For the past several years, one of my pumpkins has been a take on the Norwegian artist Edvard Munch’s “The Scream.” It’s oddly therapeutic as I think about the attacks on our industry and the willingness of the media to parrot even the most absurd argument. None more so than the food vs. fuel canard.

Food vs. fuel Malthusians are so quick to grab their megaphones and scream to high heaven that rising corn prices mean rising food prices. They blame any corn price increase on ethanol production. Of course, this argument is complete and utter malarkey.

So, what happens then when corn prices fall?

The Renewable Fuels Association recently compiled a report that examined the nonexistent relationship between corn prices and retail food prices for dairy, poultry and eggs, pork and beef and found that “fluctuations in corn prices do not significantly affect consumer food prices.” We also concluded that there is “no relationship between corn demand for ethanol and retail food prices.”

The report revealed:
• Retail prices for key dairy items like milk and cheese have been largely unresponsive to changes in corn prices. In fact, since January 2011, milk and cheese prices have been negatively correlated to corn prices, meaning retail milk and cheese prices have tended to move in the opposite direction of movements in corn prices.

• Retail prices for other items (like chicken legs, frozen whole turkey, fresh whole chicken) have risen steadily and smoothly since 2007. Wide swings in corn prices did not interrupt or affect the gradual trend toward higher prices for these items.

• Retail prices for pork products have not shown any meaningful relationship to corn prices over the past seven years. It is well documented that the recent acceleration in pork and bacon prices has been driven by piglet casualties resulting from porcine epidemic diarrhea virus. These retail price increases have occurred at a time when corn prices have been plunging.

• Retail ground beef prices have steadily and smoothly trended higher over the past seven years, showing no obvious response to wide swings in corn prices.

Now that we have established that there is no correlation between corn prices and retail food prices, what is the major catalyst for food price swings? Petroleum. Nearly every step in the food-production process, including transportation from the farm to the grocery store, requires energy. Therefore, it isn’t a surprise that the United Nations Global Food Price Index and global crude oil prices are tightly linked. In fact, since 2000, the U.N. food index and world crude oil prices have had a near-perfect correlation (0.97 coefficient). 

This fall, as you shop for Thanksgiving dinner or sit down with family and friends, tune out the food vs. fuel rhetoric spewing out of the megaphone. It’s enough to make you scream.

Author: Bob Dinneen
President and CEO,
Renewable Fuels Association