CBO Calculates Ethanol’s Impact on Food Prices

CBO Calculates Ethanol’s Impact on Food Prices

According to a newly released Congressional Budget Office report, ethanol contributed between 0.5 and 0.8 percentage points (10-15 percent) of the overall 5.1 percent increase in food prices between April 2007 and April 2008. That estimate is considerably lower than previous estimates. The report also calculated the increase in costs for federal food aid programs, which was the initial reason that Reps. Ron Kind (D-Wisc.), Rosa DeLauro (D-Conn.), and James McGovern (D-Mass.) requested it.

Despite that purpose, the Grocery Manufacturers Association, American Meat Institute, National Turkey Federation and National Council of Chain Restaurants were quick to publicize the report in their anti-ethanol Food Before Fuel campaign.

However, the report leaves a very large question open about the true causes of food price increases. The CBO notes that energy costs contributed another 1.1 percentage points (22 percent) to the 5.1 percent increase. That means that 3.2 percentage points (roughly two-thirds) are unaccounted for. And note, the 5.1 percent rise came on top of 2.5 percent and 4 percent food price increases in 2006 and 2007.

The other cited causes of increased food prices are growing global demand for meat, the depreciation of the U.S. dollar, which made U.S. corn cheaper than overseas corn, and speculation in corn futures due to expected poor harvests and overall hype about demand for corn. Is it possible that ethanol’s impact on food prices is much lower than the impact of certain groups simply raising food prices?