<b>By LINDA McGURK<br>
Indiana Correspondent</b> </p><p>

MEMPHIS, Tenn. — Another chapter in the food-versus-fuel debate was written last week as commodity research firm Informa Economics released a new study on the ethanol industry’s impact on consumer food prices.</p><p>
The study, commissioned by the Renewable Fuels Foundation (RFF), found that the statistical correlation between corn prices and consumer food prices is “weak,” and attributed rising food prices to several other factors.</p><p>
“The increase in the food consumer price index is the result of many global forces combined, the least of which is American corn prices,” said Informa Economics CEO Bruce Scherr during a Dec. 10 conference call outlining the report.</p><p>
Ever since commodity prices started rising in the fall of 2006, there have been concerns that the rapid expansion of the ethanol industry, which has caused an increased demand for corn, is to blame for rising food prices. During the first three quarters of 2007, consumer food prices increased by an annualized rate of 3.4 percent – higher than the average 2.57 percent recorded since 1992 – adding fuel to the fire.</p><p>
According to the report, farm products only account for 19 percent of the total cost of food, and even less for products where corn is just one of several farm-produced ingredients. The rest of the cost, also known as the marketing bill, is made up by nonfarm costs such as labor, energy, packaging, transportation, advertising, rent, profits and taxes.</p><p>
After analyzing the historical relationship between the price of corn and that of livestock, poultry, eggs and milk, the study found that the marketing bill has a stronger correlation with consumer food prices than corn. Of the marketing costs, the surge in crude oil prices from less than $60 a barrel in Fall 2006 to nearly $100 in November 2007 have contributed to considerably higher energy and transportation costs.</p><p>
The study noted that both a decline in the United States corn supply and an increase in demand from the ethanol industry and the export market contributed to the upward trend in corn prices that started in late 2006. U.S. corn production dropped from a record level of 11.8 billion bushels in 2004 to 11.1 billion bushels in 2005 and 10.5 billion bushels in 2006, while the ethanol industry boosted its usage of corn from 1.3 billion bushels to 2.1 billion bushels.</p><p>
During the same time period, corn exports increased from 1.8 billion to 2.1 billion bushels.</p><p>
The study also suggested the effects of higher corn prices likely are being absorbed by the middle players in the value chains for meats, poultry and other corn-based food products, where the profit margins are now lower than they otherwise would be.</p><p>
“The question becomes whether those middle players in the economic structure can pass prices on. Sometimes they can, sometimes not,” said Scherr. “If prices become too high, there will be a rationing of the product. The economy always solves its own excesses, whether they are surpluses or deficits.”</p><p>
As far as Bill Lee, chairman of the RFF, is concerned, this means the food-versus-fuel debate has been settled once and for all.
“We believe this study sets the record straight,” he said. “All the indications we had showed that the public wasn’t buying (the food-versus-fuel) argument in the first place. This study provides a very good statistical underpinning to a complex issue and shows that it was unfair to single out the corn industry as the driver for higher consumer food prices.”</p><p>
Corinne Alexan-der, a Purdue University agricultural economist, has also studied the relationship between biofuel and consumer food prices, and she agreed the price of corn is far from the only factor that causes food-price inflation.</p><p>
She noted tight supplies for both wheat and soybeans are pushing up grain prices, while global growth and the weak U.S. dollar are boosting exports.</p><p>
“I’d have to attribute (the food price inflation) to strong worldwide growth, the expansion of the biofuels industry and increasing energy prices. Those are the three biggest reasons why food prices are going up.”</p><p>
She doubted the study will end the food-versus-fuel debate.
“I would have to say the debate is still ongoing. You can’t answer it just by looking at corn prices. You have to look at the whole picture,” she said.</p><p>
“As long as there are concerns about world food price inflation, people will look for reasons and try to understand why they are paying more for their food.”