By JANE HOUIN
Ohio Correspondent

MARION, Ohio — If you have been to the grocery store more than once within the last year, you’ve probably noticed it: food prices are rising. The Labor Department has said that our food and beverage prices have increased by 3.9 percent in just the last year, marking the quickest jump in food prices over the last three years.

Many critics are blaming the cost increase on the growing demand of ethanol, which in turn has increased the price of corn, but a new study placing blame on energy costs is putting a hold on the “corny” conclusions for now.

“Only pennies worth of corn goes into a box of cereal,” said Ohio Corn Growers Assoc. Executive Director Dwayne Siekman, defending corn’s position as the scapegoat in the dilemma. “The cost of a box of corn flakes is high because of marketing and transportation costs. Same with a bag of chips,” he said.

According to a study released by the Renewable Fuels Association (RFA), corn prices are up 33 percent from last year, but the impact of that price rise is a much smaller part of food cost increase than is being reported. Conducted by John Urbanchuk of LECG, LLC., the chief reason for increasing food costs is escalating energy costs.

“Energy costs have a much greater impact on consumer food costs as they impact every single food product on the shelf,” said Urbanchuk. “Energy is required to produce, process, package and ship each food item. Conversely, corn prices impact just a small segment of the food market as not all products rely on corn for production. While it may be more sensational to lay the blame for rising food costs on corn prices, the facts don’t support that conclusion. By a factor of two-to-one, energy prices are the chief factor determining what American families pay at the grocery store.”

“Critics of ethanol, including those in the animal feeding and oil industries, are engaging in baseless scare tactics to convince Americans that ethanol production will irreversibly increase their grocery bills,” said Renewable Fuels Assoc. President Bob Dinneen.

“While it is true increased ethanol production is creating a real market-driven price for corn, this report clearly presents the undeniable facts: energy prices, not ethanol, are responsible for much of the increase in the price of food. Further, our industry is rapidly developing next generation cellulosic ethanol technology that will allow us to meet the growing demand for renewable fuels from wood chips, switch grass and other materials in addition to corn. Ultimately, the market will adjust and all those in the food, fuel and fiber industry will be able to prosper.”

The study notes that the boost in corn prices could have no more than a 0.3 percent increase in food prices while a similar increase in energy costs account for 0.6-0.9 percent of the rising cost of food – more than twice the impact of corn.

“Plain and simple, corn prices are not the sole reason, or even the major reason for higher prices in the grocery aisle today,” said Dineen. He said there’s a concerted effort by the oil industry to fight off ethanol industry growth in a public relations battle that brings livestock and poultry people out against ethanol. “They’re not looking at the energy bill in Congress.”

The proposed energy bill would increase the Renewable Fuels Standard to require refiners to produce and use 36 billion gallons of renewable fuel by 2022.

“The 36 billion gallons in renewable fuels will not be 36 billion gallons from grain, but 15 billion gallons from grain,” Dineen said. “The industry would have been there anyway. Instead the added
21 billion gallons will come from cellulosic sources.”

He noted that the bill in Congress would do for cellulosic ethanol what the 2005 energy bill did for grain ethanol.

Much of the debate has been centered on the notion that the U.S. will not be able to produce enough corn to satisfy all markets, creating shortages and intensifying competition that will continuously drive the price of corn higher.

This claim misses some key facts. Advancements in seed, farming and ethanol technologies are allowing American farmers to continue feeding the world while helping to fuel our nation.

“There is no conflict between food and fuel - we can produce both,” said Ken McCauley, president of the National Corn Growers Assoc.

“Demand for corn is at unprecedented levels, and we fully expect unprecedented levels of supply as well. This spring U.S. corn growers planted the largest crop this country has seen since the 1940s. Given normal weather conditions this summer, we’ll produce the largest corn crop in history, and that will allow us to readily satisfy demand for livestock feed, human food processing, exports and fuel ethanol.”

Today, the U.S. ethanol industry produces about 6 billion gallons of product that flows into cars and trucks across the country.

This farm news was published in the June 27, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.