U.S. ag secretary says ethanol holding gas prices in check

Source: JIM MARTIN • Erie Times-News  • Posted: Wednesday, March 14, 2012

U.S. Agriculture Secretary Tom Vilsack knows gas prices are high.

His wife reminded him just how high recently after she paid more than $90 to fill their midsize car in Washington, D.C., where gas sells for more than $5 a gallon.

But Vilsack, a Pittsburgh native, said prices could be a lot worse.

In an interview with the Erie Times-News, Vilsack said Tuesday that ethanol and other biofuels are helping to hold prices at the pump in check.

“If we did not have a biofuel industry, we would probably be looking at 80 cents to $1.30 higher than today,” he said.

“Right now, the blend is 10 percent,” he said, referring to the share of ethanol that’s mixed with gasoline. “Basically you are extending your supply by that amount. As you put 10 percent of a less-expensive commodity into the gasoline mix, you are going to lower your cost.”

Some critics argue, however, that more ethanol in our gas tanks comes at a price. More corn grown for fuel means higher prices and less corn available for food processing and livestock feed.

Vilsack said he thinks too much has been made of that connection.

“I think it’s a false debate about food versus fuel,” he said, adding that substantial improvements in production have allowed farmers to use the same amount of land to produce corn for both food and ethanol production.

Vilsack does acknowledge that food prices have risen. Corn, for instance, is selling for $6.70 a bushel, a six-month high.

But higher commodity prices aren’t passed on to consumers dollar-for-dollar.

“Farmers only get 16 cents out of every food dollar,” he said. “Someone else gets the other 84 cents, and they all have something in common. They truck, process, package, refrigerate and store food. When they do that, they use energy.”

In short, he said, rising food prices have more to do with energy prices than the supply of corn or other crops, he said.

“The last time we studied this in 2008, we found that 4 percent of the increase (in food prices) was due to ethanol,” Vilsack said. “Ninety-six percent was something else.”

That’s why the U.S. Department of Agriculture is working to find new crops that can be used to produce ethanol, providing an alternative to foreign oil, he said.

Officials at Erie-based Hero BX, one of the nation’s largest producers of biodiesel, said both biodiesel and ethanol provide a lower-cost ingredient that can lower overall fuel costs.

Chris Peterson, the company’s vice president, estimated that blending ethanol into gasoline lowers the price of gasoline by 7 to 8 cents a gallon.

Vilsack’s higher estimate of the savings may have been taking other factors into consideration, Peterson said.

Vilsack said the Department of Agriculture has a role to play in reducing dependence on foreign oil.

But he’s also keeping an eye on food prices.

“We think price increases will be more moderate than last year,” he said. “We’re looking in the neighborhood of 2 or 3 percent.”