RFS not driving food price increases — study

Source: Amanda Peterka, E&E reporter • Posted: Thursday, June 13, 2013

There is no direct correlation between federal biofuels mandates and increasing food prices, according to an analysis released today by ethanol trade group Renewable Fuels Association.

The analysis by ABF Economics, an agriculture and biofuels economics consultant, found that increased ethanol production under the renewable fuel standard is only one of several factors behind increasing corn prices. Other factors to blame include high oil prices, rapidly expanding global demand for agricultural commodities, speculation in commodity markets and expansionary U.S. monetary policy.

“It is undeniable that corn used for ethanol production and corn prices both have increased since imposition of the RFS,” wrote John Urbanchuk, the study’s author. “However, the increase in corn prices reflects factors other than demand for ethanol.”

According to the new study, food price inflation as measured by the Consumer Price Index has increased at a slower rate since 2007, the year the renewable fuel standard was last revised, than it did in the previous five years. The analysis further found that the RFS, which calls for 36 billion gallons of biofuels a year to be blended into the nation’s motor fuel supply by 2022, has not had an impact on the share of disposable income devoted to food.

“While it is true that food prices have increased modestly faster than overall inflation in the past several years, consumers are not spending a greater share of income on food than was the case before the RFS was implemented,” the study says.

Given that raw commodities represent a small percentage of the final price of food — a farmer on average received just 15.5 cents of each consumer food dollar in 2011 — energy, food processing and other outside costs have contributed much more to increases in the price of food, according to the study.

While meat and poultry consumption has gone down since the RFS was put into place, the study blames the downward trend on the recession. Livestock producers have benefited from the standard because of the increased production of ethanol byproducts like distillers’ dried grains, which can be used in livestock feed, the study argues.

The ethanol industry touted the results today, calling the study “definitive evidence” of the renewable fuel standard’s negligible impact on food prices.

“This report should end the food vs. fuel debate for good,” said Bob Dinneen, president and CEO of the Renewable Fuels Association.

The study, though, is just one of several analyses released over the past year by the ethanol industry showing that the renewable fuel standard is not responsible for high food prices. Livestock and food manufacturers, on the other hand, have released several others that have put the blame for high food prices squarely on the RFS.

A study released earlier this year by an independent consultant, for example, found that increased use of corn under the renewable fuel standard is “strongly associated” with an increase in the prices for the raw food commodities. The resulting increase in commodity costs, according to the analysis by Thomas Elam of Indiana-based FarmEcon LLC, has driven up the percentage of a family’s income that is spent on food (Greenwire, Jan. 11).