food or fuel

Do we have to choose?

By Seth Teter

It’s been said that the food versus fuel conflict – the debate over whether there is enough corn for both ethanol and food production – is really a conflict between perception and reality.

On one hand, the logic seems intuitive. More of the nation’s corn crop has shifted to the production of renewable fuels such as ethanol. This increased demand for corn has raised livestock feed prices. Therefore, people assume the price of meat, milk and eggs is rising.

But that’s only part of the story, said Adam Sharp, Ohio Farm Bureau Federation senior director of national and regulatory affairs.

“It’s true food prices have increased. But unfortunately, a dairy farmer doesn’t have the luxury of putting up a sign at the end of the driveway that says I’m charging $5 a gallon for my milk today,” he said.

The fact is farmers who produce commodities, be it corn or beef, cannot pass along their increased input costs to consumers. They simply take the price the market is paying, and the market pays based on supply and demand.

In addition, a recent study by the Center for Agricultural and Rural Development at Iowa State University estimated a 30 percent increase in corn prices would only result in an average food price increase of 1.1 percent.

So if corn is not the culprit, what is?

“As energy costs have increased, it has become more expensive to process, package and transport food items for retail sale,” said Jim Sartwell, an economist for the American Farm Bureau Federation. “In addition, soaring demand overseas for U.S. dairy and meat products has reduced quantities available at home, resulting in retail price increases at the grocery store.”

In fact, about 80 percent of what consumers spend on food is made up of off-farm costs including energy, transportation and labor. There is also very little corn in products such as corn flakes or soda. Even if corn prices doubled, the price of a $4 box of cereal would only increase by a few cents.

But take the issue out from under the microscope of the current situation and it’s clear that Americans have fared well when it comes to the cost of food. The percent of disposable income that U.S. citizens spend on food has fallen from 20 percent in the early 1950s to about 10 percent today.

To gauge food price trends around the nation, the American Farm Bureau Federation annually conducts an informal survey in which shoppers report the prices of Thanksgiving meal items. According to the survey, the inflation adjusted cost of the meal for 10 has remained at around $20 and has actually declined since the first report in 1986 (see chart ).

According to Sharp, U.S. farm programs have helped stabilize the food system by ensuring an abundant, domestic food supply.

“With the rise in ethanol production, it is an interesting time for agriculture in this country, and there is some level of uncertainty,” Sharp said. “But there’s little reason to think that we will not continue to have affordable food compared to the rest of the world.”

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