Impact of diversion of corn to ethanol
Consumers have not yet experienced the pass through effect of increased corn and soybean meal prices despite indications of escalation.
The conclusions of a report “The Rush to Ethanol” by the Food and Water Watch Network affiliated with the Vermont Law School Institute, clash with the latest American Farm Bureau Federation Market Basket Survey. The Vermont Report concluded that rising energy prices and not the increase in the cost of corn associated with diversion to ethanol is responsible for the escalation in prices paid by consumers for meat and grain products. The AFBF Survey showed a 4% rise in a standard “basket” from $40.80 to $42.95 from the first quarter of 2006 compared to the corresponding period in 2007.
The corresponding increase from July 2006 to 2007 was 8% covering the 16 items comprising the basket. Inflation in the cost of food as measured by the Department of Labor Consumer Price Index confirms a 4% increase during 2006 compared to an average rate of 2.5%. We in the industry have a more immediate and personal measure of the increases in the price of commodities through our weekly feed costs.
It is estimated that for every increase of 25 cents/bushel in corn, the cost of producing a dozen eggs increases by 1 cent and broilers rise by 0.8 cent per pound processed weight. Michael Swanson, an economist with Wells Fargo Bank, asserts that pork and poultry producers have endured a 30% increase in production cost during the past year. This is confirmed by USDA-ERS data which show that the index of production cost attributed to feed has risen from May 2006 to May 2007 by 37% for eggs, 42% for turkeys and 34% for broilers. To date, consumers have not yet experienced the pass through effect of increased corn and soybean meal prices despite preliminary indications of escalation.
Since volumes of consumption are closely linked to the prices of poultry products, decreases in National output is anticipated from 2009 onwards according to a University of Missouri study. The analysis entitled “Impacts of a 15 Billion Gallon Biofuels Mandate”, documents the effect of the 2015 target set by the Senate energy bill in decreasing domestic consumption and export of broilers and turkeys and eggs with a corresponding reduction in output.
There is a need to step back and review our national priorities regarding alternative sources of energy. Cellulose-derived ethanol is a number of years from commercial reality. Conservation especially in reducing CAFE standards has been conveniently lobbied into the background. The growth of the domestic ethanol industry is supported by an artificial 54 cent tariff on imported ethanol and a 51 cent refiners’ subsidy for blending gasoline and ethanol. The current policy represents an indirect tax on consumers and a punitive measure against the livestock and poultry industries, benefiting corn growers and refiners. The inequity inherent in the “quick fix” by Congress and the Administration to resolve the problem of reliance on imported oil through conversion of food to fuel must be addressed. The Law of Unintended Consequences invariably overrides laws passed by our Congress.