Top USDA economist says RFS plays ‘small role’ in food prices

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, June 26, 2013

Increased ethanol production spurred by the renewable fuel standard is partly responsible for high corn prices but has had only a small effect on U.S. retail food prices, the Agriculture Department’s top economist plans to tell lawmakers today.

USDA Chief Economist Joseph Glauber will testify this afternoon at a highly anticipated hearing of the House Energy and Commerce Subcommittee on Energy and Power. The hearing is the first in a series that the subcommittee plans to hold throughout this summer to review the 2007 standard, which mandates that 36 billion gallons a year of biofuels be blended into the nation’s motor fuel supply by 2022.

According to prepared remarks, Glauber will focus his testimony on the “food versus fuel” debate that has weighed heavily on Capitol Hill since last year’s drought in the nation’s major corn-producing regions.

He will tell subcommittee members that studies have shown ethanol has accounted for 30 to 36 percent of high corn prices over the past several years but that other factors have also been behind price spikes.

“The rise in commodity prices over the past few years has also been due to a variety of other factors, such as increasing global demand, production shortfalls, as well as increasing energy prices,” Glauber’s written testimony says.

Glauber will tell the committee that ethanol’s effects on retail food prices found in grocery stores have been minimal because farm commodities make up only about 14 percent of each dollar the nation spends on food.

“Ethanol had a small role in raising food inflation compared to other factors such as energy costs,” Glauber writes.

The chief economist also plans to tell lawmakers that higher corn prices have affected both the amount of corn planted in the United States and the feed available for livestock producers.

The RFS has encouraged producers to plant more corn to meet increased demand as well as boosted the incomes of farmers, he says in his written testimony. Average cash receipts from the farming sector between 2007 and 2013 increased almost 56 percent from those seen in the period between 2000 and 2006, according to Glauber.

But as more corn has been diverted to ethanol production, Glauber says, other uses for corn such as livestock feed and exports have declined. Corn use for livestock and poultry feed declined by 26 percent between 2005 and 2012; exports fell by 28 percent during that time.

The decline in corn used for feed has been “partially offset” by the co-products generated during ethanol production, but livestock, dairy and poultry producers have “faced more uneven, and in some cases, declining returns” since 2005, the year the first renewable fuel standard was put in place, Glauber will tell lawmakers.

“In general, higher feed grain prices have helped net cash income for row crop producers, but have also raised feed costs that lower profit margins for livestock, dairy and poultry producers,” Glauber says in his written testimony.

Glauber projects that there will be slower growth in the demand for corn to produce ethanol over the next decade due to decreasing gasoline consumption, limited opportunity to blend ethanol into gasoline at levels higher than 10 percent, and reduced exports due to increased competition from Brazil and a recent E.U. tariff on U.S. ethanol imports.

The hearing comes as several outside groups in the refining, food, environmental and livestock sectors are pressuring lawmakers to reform or repeal the standard, partly because of its impacts on food and feed prices. The ethanol and livestock industries have released several competing studies over the past months on the impacts of the RFS on food prices.

Last year, as much of the countryside remained in drought for months on end, several livestock-state governors asked U.S. EPA to waive the standard’s corn ethanol requirements. EPA denied the requests, saying it had not found evidence of “severe” economic harm caused by the standard’s required 2012 ethanol level of 13.2 billion gallons.

The waiver decision, as well as EPA’s proposed 2013 biofuel levels, will likely come up in questioning at today’s hearing. Christopher Grundler, EPA’s director of transportation and air quality, and Adam Sieminski, administrator of the Energy Information Administration, will also testify.

According to Glauber, ethanol use in the future will be tied to energy prices rather than any long-term changes to ethanol policies like the renewable fuel standard.

“So long as ethanol is priced less than gasoline,” he wrote, “it is unlikely that there will be much reduction in ethanol usage from current levels.”