Daily News Update, Dec. 11, 2007
Statistical analysis finds little connection
between corn ethanol production and consumers' food bills
T here
has been intense public debate during the last year about the impact of
the growing U.S. ethanol industry on consumer food prices. That debate
has been fueled mainly by anecdotal information and speculation. Informa
Economics has released a detailed statistical analysis that brings focus
to the issue.
The Informa
report identifies the so-called "marketing bill"—the portion of final
food costs that excludes grains or other raw materials—as a key driver
of the consumer price index (CPI) for food, largely due to rising energy
and transportation costs. Another significant factor in consumers' food
bills is surging global demand for commodities.
The report
finds a comparatively "weak correlation" between corn prices and overall
food costs. In fact, just four percent of the change in the food CPI
could be attributed to fluctuations in the price of corn. Simply put,
growing U.S. ethanol industry is not the cause of food price inflation.
"This analysis
puts to bed the argument that a growing domestic ethanol industry is
solely responsible for rising consumer food prices," said Informa
Chairman and Chief Executive Officer Bruce Scherr.
"The
statistical analysis plainly details that energy-intensive activities
such as processing, packaging and transporting, as well as the cost of
labor, have a far greater impact on consumer food bills than the price
of grain," Scherr reported. "It may be politically convenient to blame
ethanol for rising food prices but it doesn't make it factually
accurate. As far as Informa is concerned, this debate is settled."
The debate
around the root cause of rising food prices has taken on an increasingly
emotional, rather than factual, character. To center the debate back on
the solid footing of statistical analysis, Informa has outlined a number
of key findings from its report, including:
-
The
"farm value" of commodity raw materials used in foods accounts for
19 percent of total U.S. food costs, a proportion that has declined
significantly from 37 percent in 1973. The remaining portion of
total retail food costs is known as the marketing bill, which
includes the costs of labor, packaging, transportation, energy,
profits, advertising, depreciation, rent, interest, repairs,
business taxes and other costs not attributable to basic
agricultural commodities.
-
The
marketing bill has a higher correlation with the consumer price
index for food than does corn, although there is a notable long-term
upward trend to both the marketing bill and the food CPI. There is
no statistical evidence to suggest that high and/or rising corn
prices are the causative reason behind high and rising retail meat,
egg and milk product prices. The proportion of the average
American's disposable income spent on food has declined steadily
over the last half-century, from 21 percent of disposable income in
1950 to below 10 percent in 2006.
-
No single
factor drives consumer food prices over time. That has also been
true of the moderately higher-than-average inflation during the
first three quarters of 2007. There is actually a complex and
interrelated set of factors that contribute to food prices.
" Informa
lays bare the facts as to why Americans are paying more for everything
from milk to Captain Crunch," said Bill Lee, chairman of the Renewable
Fuels Foundation, which commissioned the analysis. "Much to the chagrin
of those in the livestock, meat and food processing and oil industries,
it isn't the growth of the U.S. ethanol industry.
"Soaring
energy prices, increasing global demand and rising labor costs have a
far more significant impact on food prices than stronger corn prices due
in part to ethanol demand. Given the reputation of Informa among those
in the agricultural and livestock industries, this report should bring
an end to the disingenuous debate about food versus fuel."
The analysis
concludes:
"While there have been a number of stories in the media over the last
year indicating that consumer food prices are being driven higher by an
ethanol-induced increase in corn prices, there is little evidence of
such a simplistic cause-and-effect linkage.
"While
an increase in corn prices will affect certain industries–for example,
causing livestock and poultry feeding margins to be lower than they
otherwise would have been–the statistical evidence does not support a
conclusion that there is a strict 'food-vs.-fuel' tradeoff that is
automatically driving consumer food prices higher."
A copy of the
analysis, entitled "Analysis of Potential Causes of Consumer Food Price
Inflation," can be found on Informa's Web site at
www.informaecon.com
.
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