By LINDA McGURK
Indiana Correspondent

WASHINGTON, D.C. — The main culprit behind rising food prices is oil, not biofuels. That was the take-home message when USDA officials weighed in on the food-versus-fuel debate at a press conference last week.

“For food products, higher oil prices mean higher costs of transportation, processing, packaging and distribution, and all the other intermediary steps that bring commodities from the farm gate to the retail store,” said USDA Secretary Ed Schafer, noting that those steps account for 80 cents of every dollar spent on food in the United States.

With oil prices breaking new records every week, Schafer made the case that biofuels are more important than ever for U.S. energy security as well as national security. Even though the biofuels program may be associated with some short-term costs, he said these are outweighed by “substantial” long-term benefits.

For example, biofuels production in the United States and Europe during the past three years has cut oil consumption by 1 million barrels per day, saving $120 million per day at current prices.
U.S. food prices increased by 4 percent in 2007 and are expected to rise another 5 percent this year. Meanwhile, global food prices rose a staggering 40 percent last year, causing food riots and humanitarian crises around the world.

Schafer acknowledged that the push for renewable fuels has contributed to higher commodities prices, but refuted the popular belief that corn-based ethanol is to blame for rising grocery bills.
“It’s true that higher demand for corn for ethanol and soybeans for biodiesel has led to higher prices for those crops over the past couple of years. But we do not have a one-on-one relationship between higher prices for those commodities and what consumers are paying for foods at the retail level,” he said.

Corn is an ingredient in less than a third of the common food items whose price the USDA tracks.

But USDA Chief Economist Joe Glauber said there are two uses of corn that do affect the Consumer Price Index (CPI) – directly through the use of corn sweeteners in a wide variety of products, and indirectly when corn is fed to livestock.

“That does get translated over time into higher livestock prices. Not because livestock producers can pass those costs on to producers, but livestock producers tend, when margins get squeezed, to reduce herd sizes. Because there’s fewer animals, less meat being produced, prices then will go up,” Glauber said.

USDA estimates that a 50 percent increase in corn prices raises the CPI less than 1 percentage point above the normal rate of food price inflation.

Referencing a study by the President’s Council of Economic Advisers, Glauber said only 3 percent of the increase in global food prices should be attributed to the increase in the production of corn-based ethanol.

Aside from skyrocketing oil prices, Glauber cited global economic growth and increased demand for meat and other livestock products in countries like China and India as main contributors to high world food prices.

“The other major factor that we’ve seen, certainly affecting world prices, has been the weather situation,” he said.

“Australia is suffering now or is just beginning to come out of a drought that really affected the last two crops quite adversely.”
Glauber added that export restrictions on rice imposed by some countries compounded the problem.

Emergency food aid from the United States will alleviate some of the most pressing humanitarian crises, but with the world population growing by 50 million people annually, Schafer stressed that increased demand for both food and energy requires long-term solutions.

“Our need for food and fuel is only going to grow,” he said. “For agriculture to meet that need, we must work with other nations to get more productivity out of the land that we have through wider use of biotechnology and better farming and irrigation and pest control methods.”