CBO report: Ethanol's role in increased food prices

By Erin Voegele | April 14, 2009
Web exclusive posted April 15, 2009, at 10:30 a.m. CST

A recently released Congressional Budget Office (CBO) report, titled "The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions," found that while increased ethanol production did contribute to rising food prices between April 2007 and April 2008, high energy prices had a much more profound effect on the price of food.

The report shows that from between April 2007 and April 2008 ethanol production accounted for only 10 to 15 percent of the estimated 5.1 percent increase of food prices. In other words, expanded ethanol production during this time contributed between 0.5 and 0.8 percentage points of the increase in food prices measured by the consumer price index. The CBO report states that, "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."

In comparison, the CBO found that the increase in the consumer price index for all urban consumers (CPI-U) for energy implies a direct boost in the CPI-U for food of 1.1 percentage points, or 22 percent of the 5.1 percent increase in the price of food during the period studied.

CBO's estimate that ethanol caused this 0.5 to 0.8 percent increase in the price of food includes is based on two components; an assessment of how increased ethanol production contributed to increases in the price of corn, animal products and soybeans, and a reckoning of how higher prices for these commodities contributed to the prices of foods that are measured in the CPI-U.

In addition to expanding demand for corn to produce ethanol, CBO cites a variety of other factors that contributed to the rising price of corn in the U.S. during this one year period. These include a growing demand for meat that increased the demand for animal feed, the depreciation of the U.S. dollar that increased demand for U.S. corn exports, and concerns about a poor harvest due to unfavorable weather for spring planting that caused corn prices to rise during the spring of 2008.