Corn Ethanol Has Little Effect on Food Prices

By Jim Nussle
Agweek
July 6, 2009

WASHINGTON — A new report from the Congressional Budget Office confirms what hundreds of economists and industry experts have stated for months: Using corn for ethanol has little impact on the price of food. Rather, the main culprits driving the higher cost of food are energy costs, excessive unregulated speculation in the commodities future market and a weak dollar.

The CBO analysis says ethanol was only responsible for 0.5 percent to 0.8 percent of the rise in food prices.

For far too long, the ethanol industry has been the scapegoat for last year’s dramatic increase in food prices. As former director of the Office of Management and Budget and former chairman of the House Budget Committee, I recognize the unbiased credibility of the recent CBO report and hope that it will serve as the final nail in the coffin of the half-baked theory that ethanol was somehow to blame for high food prices. The evidence is in — ethanol is not to blame.

Big Food
The average cost of food increased 5.1 percent last year — again, less than 1 percent was attributed to ethanol, according to the CBO. Big food corporations posted big gains in profits during this time, yet tried to blame ethanol for higher food prices while the price of corn was at record highs. Now that prices for both corn and energy have fallen, excessive speculation has been curbed, the dollar strengthened and exports plummeted, why haven’t food prices come down?

It’s been more than 150 days since Growth Energy has called on Big Food to stop the finger-pointing and lower their prices so that millions of struggling Americans can put food on the table. They have yet to do it and have yet to be held responsible to ask the tough question why they haven’t come down. Maybe it’s time Congress got involved.

Despite the overall good news that ethanol was not the significant cause of higher food prices, CBO’s analysis used outdated information regarding the benefits to the environment of today’s modern ethanol. The latest ethanol study published in Yale’s Journal of Industrial Ecology demonstrates that U.S.-produced ethanol reduces greenhouse gas emissions by up to 59 percent compared with gasoline.

If Congress is serious about reducing the nation’s dependence on foreign oil, creating jobs that can’t be outsourced and trimming our environmental impact, it should stand with ethanol. As the only existing alternative to foreign oil that is ready today, ethanol already has saved Americans billions at the gas pump.

Outdated Rules
Now that we can stop pointing the finger of blame at ethanol, it’s time to figure out how we can let it meet its true potential. A 30-year-old government mandate requires 90 percent of fuel be gasoline as opposed to an arbitrary cap that 10 percent be ethanol. By increasing blend levels from 10 percent to 15 percent, we can create more than 136,000 new green-collar jobs, inject $24.4 billion into the U.S. economy and displace 7 billion gallons of imported gasoline each year. We’ll also reduce greenhouse gas emissions by another 20 million tons per year — about the same as removing 3.5 million cars from the roads.

Increasing blend levels to 15 percent creates domestic demand for farm commodities and saves taxpayers money by reducing federal outlays for the federal farm safety net program. Consumers benefited at the pump as ethanol production reduced gas prices by 29 cents to 40 cents per gallon in 2008. The science behind ethanol speaks for itself. We need to ignore those who are looking to protect the status quo and instead continue to invest in this homegrown resource. The government should continue to show its support by raising blend levels up to 15 percent.

Overall, the development and use of ethanol saves money for taxpayers, benefits consumers, reduces our dependence on foreign oil, creates green jobs, revitalizes our rural communities and reduces our environmental impact. This is good for America, good for our national security, good for our national energy strategy and frankly, is something that should have been done long ago.

Editor’s Note: Nussle served as director of the Office of Management and Budget from 2007 to ’09. A former eight-term member of Congress from Iowa, he now serves as special adviser to Growth Energy’s board of directors.