'Food versus fuel' redux

by Jay Sjerven
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With corn futures prices recently surging to set new all-time highs, breaking through the ceiling established during the U.S. and world food price crisis of 2007-08, the debate over the nation’s ethanol policy came to the fore once again during two recent congressional hearings.

Scott Faber, vice-president of federal affairs for the Grocery Manufacturers Association, on April 13 told members of the Senate Committee on Environment and Public Works that federal support to the corn ethanol industry had the effect of raising the cost of producing food with the higher costs passed on, even if reluctantly, to the consumer. Mr. Faber’s view contrasted with the perspective of Secretary of Agriculture Tom Vilsack, who testified before the committee that several factors were propelling food prices higher in the United States and especially overseas and that U.S. renewable fuels policy played only a minor role.

On the same date, on the other side of the Capitol, poultry industry executives urged members of the House Agriculture Committee’s Subcommittee on Livestock, Dairy and Poultry to rein in subsidies to the ethanol industry and reduce the Renewable Fuels Standard (R.F.S.) in the event of a shortfall in corn production to ensure a “level playing field” for poultry producers to compete with the ethanol industry for limited corn supplies.

Mr. Faber told the Senate committee U.S. food-at-home prices were forecast to advance 3.5% to 4.5% in 2011 with even higher price gains expected for basic food staples like milk, meat and eggs. Mr. Faber said the same factors that caused “a perfect storm” in 2008 food markets were again contributing to rising food and food ingredient prices, including strong global demand, poor weather, rising energy costs, commodity speculation and trade restrictions. But he referenced a significant difference between trends in 2011 compared with 2008 was “even more of our food and feed is being diverted to produce fuel.”

One-quarter of the 2008 corn crop was diverted from food and feed use to fuel manufacturing, Mr. Faber said, whereas in the current year nearly 40% of the corn crop was forecast to be used in manufacturing more than 13 billion gallons of corn ethanol.

“As a result, corn stocks are at or near record lows, contributing to high prices and extreme volatility,” he said.

Feed accounts for 70% of the cost of producing meat and poultry, and higher corn and meat prices also raise the costs of manufacturing processed foods, Mr. Faber said.

He referred to the recent decisions of the Environmental Protection Agency that allow fuel and fuel additive manufacturers to introduce into commerce gasoline containing up to 15% ethanol by volume for use in light-duty motor vehicles manufactured in 2001 and afterward. Mr. Faber said Congress should instead freeze the amount of corn ethanol blended into gasoline to provide advanced (non-corn-based) biofuels more time to reach commercial scale, to permit changes to engines unable to safely operate with higher ethanol blends, to complete assessments of the impacts of higher blends on engines and the environment, and to allow corn yields to catch up with demand created by the R.F.S.

Mr. Faber called for reforming the Energy Independence and Security Act of 2007 to require linking the corn ethanol production mandate under the R.F.S. with corn availability, i.e., if corn supplies are tight, the mandate should be reduced.

He also called for ending of the Volumetric Ethanol Excise Tax Credit (VEETC) and using the savings estimated at nearly $5 billion a year to invest in developing advanced biofuels. The VEETC provides fuel blenders a credit of 45c a gallon for manufacturing gasoline containing corn ethanol.

The notion the nation had to choose between food and fuel was challenged by Mr. Vilsack.

“Some have suggested that not enough food, feed and fuel can be grown to meet our needs,” he said. “However, we have seen that time and again, our nation’s farmers and ranchers have risen to that challenge. Growing energy crops is another challenge for this country and the globe, and we are confident that we can meet food, feed and fuel needs while maintaining and expanding our conservation ethic and creating jobs and economic growth in rural economy.”

Mr. Vilsack said the farm value of crops account for only about 16c of the retail food dollar.

“In addition, while corn prices have increased substantially over the past nine months, previous work suggests that the effects on retail food prices are likely small,” he said. At the same time, he acknowledged “higher corn prices do play a role in projected meat price inflation with beef prices currently forecast to increase 4.5% to 5.5% and pork prices forecast to increase 6% to 7% in 2011.”

Paul Hill, chairman, West Liberty Foods, West Liberty, Iowa, speaking on behalf of the National Turkey Federation, told the House panel the biggest reason the poultry industry was not more optimistic was surging feed costs.

“As both a turkey producer and a corn farmer, I will tell you there is one reason for those costs increases — the federal ethanol policy,” Mr. Hill said.

He continued, “We must quit pretending that ethanol hasn’t had an impact on livestock and poultry farmers as well as end consumers. It has and it will continue to have one as long as our current policies are in place.”

Michael Welch, president and chief executive officer, Harrison Poultry, Bethlehem, Ga., speaking on behalf of the National Chicken Council, said, “The rules of the game must be balanced and the playing field should be leveled to permit chicken producers and other animal agriculture producers to more fairly compete for the limited supplies of corn in the next few years. Included in this effort must be a safety valve to adjust the R.F.S. when there is a shortfall in corn supplies.”

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