Data Also Disproves Food v. Fuel Claims

Biofuels & Climate Change

The Wall Street Journal’s Scott Kilman reported earlier this week on a letter sent by General Mills, the Grocery Manufacturers Association and Kraft Foods to Ag. Sec. Tom Vilsack, asking for reduction of trade tariffs on sugar. From Kilman’s article and the letter, it’s clear that grocery manufacturers are once again trying to distract public attention from their price increases by pointing a finger of blame at biofuels.

Last year, you may recall, Roll Call exposed the Grocery Manufacturers Association’s plan to use the food vs. fuel debate to cover their industry’s price increases.

Kilman writes:

Prices are up because the world is consuming more sugar than farmers are producing. One big factor: The world’s largest sugar producer, Brazil, is diverting huge amounts of its cane crop to making ethanol fuel. Likewise, the food industry has complained bitterly in recent years about the U.S. ethanol industry’s ravenous appetite for corn, which helped push up prices for that key ingredient too.”

Sugarcaneblog provides the real explanation for current, temporary sugar price increases – rain has slowed the pace of harvesting – even while Brazil’s sugar production is up 15 percent this year.

Reuters reporter Brad Dorfman provides much more thorough, clearer analysis on the claims made by the grocery manufacturers:

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
“Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.”

The Consumer Price Index shows that food prices have actually declined a percentage point over the first half of this year, after rapid increases in the past two years. The data also show that the increases in the past year were out of proportion to inflation in other categories.

CPI Percent increase/decrease

2002

2003

2004

2005

2006

2007

2008

2009

Food

1.5

3.6

2.7

2.3

2.1

4.9

5.9

-1.1

Energy

10.7

6.9

16.6

17.1

2.9

17.4

-21.3

14.8

Other Goods

1.9

1.1

2.2

2.2

2.6

2.4

1.8

2.3

Source: Bureau of Labor Statistics.

Neither biofuels nor energy provide a good explanation for increases in food prices.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Even a Congressional Budget Office study requested by Members of Congress who wanted to make a case that biofuels’ were raising the cost of government food programs could only find a 10 percent to 15 percent impact on food prices from biofuels. That study showed that nearly two-thirds of the price increases could not be explained by either biofuels or energy prices.

Of the 5.1 percent CPI increase for food between April 2007 and April 2008, energy had a larger effect than biofuels. But even together, they account for a fraction of food price inflation:

Biofuels

0.5 to 0.8

10 to 16%

Energy

1.1

22%

Other Causes

3.2 to 3.5

62 to 68%

Source: Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” April 2009

So why is GMA resurrecting its campaign to blame biofuels for food price increases? (See also their letter to Sen. Boxer from a few weeks ago.) Likely because it was a very profitable strategy for them last year and it continues to work, at least with half the time.

Land O’Lakes

16%

Kraft Foods

21%

Sara Lee

55%

General Mills

61%

Kellogg Co.

9%

Source: 2020 Project, FoodPriceTruth.org.

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One Response to Data Also Disproves Food v. Fuel Claims

  1. ecotech says:

    That is the “bittersweet” truth on the matter. Sugar is an active ingredient in almost all foods, and the impact of a price increase will be big. Food companies pay twice the world level for sugar because of government meddling. Unless government decides to ease import quotas, countries like the US will end the next fiscal year with less than a month worth of sugar on hand but perhaps plenty of ethanol.

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