Pushing Back: Biofuels Industry

Big Food's sustained assault on biofuels has spurred the industry to take a new, more assertive stance.
By Ron Kotrba | February 04, 2009
The clock on the left side of the Growth Energy Web site says it all. As the seconds, minutes and hours tick by, accumulating in a devilish sort of fashion, the headline above the ticker reads, "When Will Big Food Lower Prices?" The Grocery Manufacturers Association, the voice of the food industry, all year had blamed soaring food prices on ethanol, biodiesel and the government policies promoting them. The question, when will big food lower prices, is a logical one. Months have passed since commodity prices, along with the economy, tumbled from the near-record highs set in 2008. Energy prices have also decreased, with gas consistently below $2 a gallon. Yet despite a return to "normal" commodity prices and the precipitous descent in fuel costs, grocery prices remain unduly high. The clock, a symbol for the message, represents a new era in biofuels. The tables have turned. Many in the biofuels industry say they believe time for aggressive action has arrived.

Growth Energy was formed toward the end of 2008, and Toni Nuernberg, the organization's executive director, Midwest, tells EPM why. "I think it's just that a lot of ethanol plants and members now of Growth Energy believe we needed a fresh approach to things," she says. "The anti-ethanol campaigns that had gone on all last summer, a lot of the research going on right now, which is very negative, those things need to be addressed and they need to be addressed very quickly when they hit the press. We're trying to be proactive and see what these issues are, and watch the horizon and know what the issues are, and address them very proactively—and probably a bit more. I don't like to use the term aggressive, but we're going to address these things in a different manner than the way the [Renewable Fuels Association] has done things in the past."

In late November, RFA released a three-page report titled, "Why Aren't Food Companies Reducing Prices?" In the report, the organization stated, "In attempting to defend the rapid food price hikes that began in early 2007, food makers pointed to then-rising costs for agricultural commodities such as corn, wheat and vegetable oil. Further, Big Food deceptively attempted to single out expanded grain ethanol production as the main driver of escalating grain and food prices."

"Big food and livestock processors, led by the Grocery Manufacturers Association, have spent many months and countless dollars trying to convince Americans that ethanol is the reason their food bills are higher," says RFA vice president of research, Geoff Cooper, who authored the study. "Despite their elaborate ruse, they cannot hide the facts. Prices for virtually all inputs in food production have fallen dramatically while U.S. ethanol production has risen. Yet, despite the drop in price for corn, wheat, soybeans, oil, natural gas and other inputs, the retail price of food continues to rise. At a time when Americans are counting every penny, the last thing they want is food companies trying desperately to shift the blame while raking in higher profits."

And while the RFA points out the overt "deception" on behalf of GMA and the food industry over the past five months in shifting the blame, National Biodiesel Board Chief Executive Officer Joe Jobe, in late December caught Kraft Foods Chief Executive Officer Irene Rosenfeld in a misstatement of epic proportions. In a Q&A with USA Today, Rosenfeld said 40 percent of the food supply is being diverted for use as fuel. Jobe responded in an editorial comment on USAToday.com that Rosenfeld's comments were "fear-mongering" at its worst. "While Kraft's income soars to new heights, the company's attempt to spread misinformation to defend the doubling of its profits has reached a record low," Jobe's posting states. "Almost half of all grains, meats, dairy, vegetables and fruit in the world are being converted to fuel? This is fear-mongering at its worst. The United Nations Food and Agriculture Organization found that of the 10.4 billion acres of available farmland, only 3.7 billion acres are used. Of that, less than 1 percent is used for biofuels such as ethanol and biodiesel. Food companies have blamed biofuels all year for higher prices. Rosenfeld's statement shows how far companies will go to distract Americans as Kraft raked in $1.4 billion in earnings last quarter. Adjusted for inflation, corn and wheat have dropped by 50 percent since spring, and soybean prices are lower than at almost any other time since the Great Depression even as biofuels production expands. This year, oil companies made more than ever in profits. The difference is, when oil prices dropped, so did the price at the pump. Too bad Big Food isn't living up to Big Oil's standards."

Food Company Profits, Agenda
In his online comments, Jobe mentioned Kraft's record profits this year. An organization called FoodPriceTruth.org pulled press releases from various food companies—press releases that speak to boosted earnings as a result of the spike in food prices. Kellogg's second quarter 2008 net earnings were $312 million, 4 percent higher than 2007's second quarter earnings of $301 million. A Kellogg's press release states, "These results were driven by innovation, recent price increases and effective brand building and were achieved after absorbing significant cost inflation. ... Our business momentum, recent price increases and focus on productivity give us confidence we will meet our goals."

In third quarter 2008, Sara Lee earned $242 million, a $150 million increase (61.2 percent) more than it earned in the same quarter the previous year. Price increases were also listed by Sara Lee as one reason why the company had such a good third quarter. Dean Foods' second quarter 2008 net income was nearly $49 million compared with second quarter 2007 net income of $28.2 million. The list goes on. For more information on food company profits, visit FoodPriceTruth.org.

FoodPriceTruth.org created this graph to show that rising commodity prices didn't seem to adversely impact the earnings of the major food companies.

The GMA, and the Food Before Fuel campaign, ignored repeated requests from EPM to take part in this article. EPM is not the only one the GMA is ignoring. "We here at Growth Energy posed the question very, very vocally, and very publicly, to the GMA and to Big Food asking, with commodity prices dropping, and with fuel prices down, why have we not seen the price of food go down?" Nuernberg says. "All we're seeing is these food companies with record profits. We've asked that question, if ethanol's the only thing to blame for the rising food prices, then why have food prices not come down? And we've not had a response from the GMA yet."

In March 2007, the GMA put out a request for proposal to hire a public relations firm to hammer home the message of Big Food's then-burgeoning smear campaign against ethanol. "Food prices are rising twice as fast as inflation," according to the GMA's request for proposal. "Although there are several factors, a mandate in the 2007 Energy Bill requiring gasoline refiners to blend 15 billion gallons of corn ethanol in the nation's gasoline supply by 2015 is the primary reason. ... GMA has concluded that rising food prices, global shortages of basic commodities, and new studies on the environmental impacts of corn ethanol create a window to change perceptions about the benefits of biofuels and the mandate and, ultimately, to build a groundswell in support of freezing or reversing some provisions of the 2007 Energy Bill and for the elimination/reform of ethanol subsidies and import restrictions ..."

Additional Perspectives
Don Hofstrand, co-director of the Agricultural Marketing Resource Center at Iowa State University in Ames, tells EPM that grain prices have "a pretty small impact" on food prices. He says 10 percent of the consumer dollar goes toward food, and of that, 20 percent goes to the farmer, so, essentially, 2 percent of the American consumer dollar goes to the farmer.

He thinks the food-versus-fuel debate will continue to "be an issue so long as the media still pay attention to it." He says everyone looks at this issue as a zero-sum gain. "In other words, if we use some commodities for biofuels, then we're going to cut back in the amount of food we have. But what these higher prices are actually doing is giving incentive for the first time in a long time for farmers to increase production, and that's never taken into account in this equation. People really underestimate the ability of the ag sector to expand production due to higher prices for sure, but to expand production to serve both masters."

Another aspect of this issue never mentioned in mainstream media is how much food is wasted in our society. Hofstrand says 25 percent to 30 percent of food bought by consumers is thrown out as waste. "We wouldn't need to grow nearly as much if we didn't waste so much of it," he says. "That would free up more grains to be used for biofuels. If we had that waste factor down to 10 percent, we wouldn't have the problems we have now of shortages and so forth. But food has been so cheap that, instead of saving it, we end up wasting it."

Congress held hearings on rising food prices in the spring of 2008 and Liz Friedlander, communications director with the National Farmers Union, says in light of precipitously falling commodity prices, the NFU has asked Congress to take another look at the causes of high food prices. She tells EPM the small business committee has responded to the request and put the issue on its agenda for this session. "We hope they hold hearings again," Friedlander says. "Conditions have definitely changed since the last time they held these hearings—and so we see this as a vehicle to set the record straight on the true causes of food price increases." She tells of how media can play an influential role in the food and fuel debate. "I think it was the day before they held the joint economic committee hearings, there was a story on the front page of The Washington Post about how a bagel shop in Bethesda, Md., was going to raise their prices because of ethanol," she says. "We did the math and there's like 8 cents worth of wheat in that bagel and they raised their price 25 cents, blaming it all on ethanol. That sort of thing gets on the front page of the paper, and we're trying to squash it." How many of those Congressmen may have read The Washington Post that morning?

To be fair, we have seen ethanol companies such as VeraSun Energy Corp. lock in high corn prices right before the commodities markets began taking a downturn. Maybe some food companies found themselves in the same position. Also, there is often a lag-time and the domino effect in commodity prices and its effect on food prices. After all, if corn and soybean meal prices are high, this could cause livestock producers to produce less beef, pork and poultry, which could drive up the price of meat long after commodity prices dipped back down. "There is a lag time," Hofstrand says. "Commodity prices can go up very fast, or down very fast, but that does not automatically translate into higher or lower food prices."

Ron Kotrba is an Ethanol Producer Magazine senior writer. Reach him at rkotrba@bbiinternational.com or (701) 738-4942.