CBO report finds high energy prices to blame for increasing food prices

By Erin Voegele | May 04, 2009
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 released by the CBO confirms what we've known for some time - the impact of ethanol production on food prices is minimal and that energy was the main driver in the rise of food prices," said Growth Energy CEO Tom Buis.

The CBO report found that between April 2007 and April 2008 ethanol production accounted for only 10 to 15 percent of the estimated 5.1 percent increase in the price of food. This means that expanded ethanol production during this time period contributed between 0.5 and 0.8 percentage points of the increase in food prices measured by the consumer price index. In comparison, the CBO found that the increase in the consumer price index for all urban consumers (CPI-U) for energy implied 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.

"Increased ethanol production saved consumers $48 billion at the gas pump in 2007," said Roger Johnson, president of the National Farmers Union. "The food cost increase attributable to ethanol is far less between $6.1 and $9.7 billion per year. In other words, for every extra dollar consumers spent on food, they saved between about $5 and $8 in gasoline cost."

CBO's estimate of ethanol's role in the price increase of food is based on two main components: an assessment of how ethanol contributed to price increases for corn, animal products and soybeans, and a reckoning of how higher prices for these commodities contributed to the price of foods measured on the CPI-U. In addition to expanding ethanol production, the CBO cited a variety of other factors that contributed to rising corn prices during this period. These factors include a growing demand for meat that increased demand for animal feed, the depreciation of the U.S. dollar that increased the demand for exports, and concerns about a poor harvest due to unfavorable spring planting conditions.

"Despite the efforts by some to blame higher food costs on farmers and commodity prices, it is evident this is not the case," Johnson said. "NFU is again calling for Congress to reconvene hearings to investigate higher retail food prices; while commodity prices have tanked since last summer's peak, grocery store prices remain high."

"The impact on food prices of our nation's push to find renewable alternatives to imported oil is dwarfed by the widespread negative economic impacts of oil itself," said Bob Dinneen, president of the Renewable Fuels Association. "While ethanol opponents may try to hold up this CBO report as proof of ethanol's impact on food prices, a close and honest review of the report reveals that many other factors, especially prices for oil and energy, have greater influence over what Americans pay at the grocery store than does ethanol production.