Ethanol boosters have a message for grocery shoppers: Don't blame us for higher food prices. Blame the oil industry.
The oil industry's response: They must be kidding. It's just the opposite.
Ethanol boosters Thursday unveiled a study showing that "rising energy prices had a more significant impact on food prices than did corn," said agriculture economist John Urbanchuk. That's mostly because corn is an ingredient in only some foods, whereas energy is a component in everything.
No one disputes that the recent near-doubling of corn prices, mostly due to ethanol demand, has affected food prices. Virtually every major food company in the United States - including local ones like General Mills and Hormel - has hiked supermarket prices, and cited ethanol as a big reason why.
But ethanol boosters say that's unfair. By Urbanchuk's measure, a 33 percent rise in corn prices would lift consumer food prices 0.3 percent. A similar rise in gasoline prices would have a bigger impact, he says - two or three times greater.
So why do food companies always cite higher grain costs? Because they can, Urbanchuk says.
"People will use that as an excuse, if you will, to pass along price increases," he said.
The oil industry's trade group scoffs.
"The study is critically flawed, the conclusions are not valid," said Art Wiese with the American Petroleum Institute. Among his objections: The study understates the impact of higher corn prices, it overstates the impact of gasoline costs - and by the way, he says, ethanol is a component of higher fuel costs.
"Adding their own product to gasoline increases transportation costs, and thus, food prices," Wiese said.
A new inflation report Thursday seemed to bolster the ethanol camp's argument. The U.S. Department of Labor reported that a big jump in gas prices pushed wholesale prices up 0.9 percent last month. But food prices actually declined 0.2 percent in May, the first drop in seven months.
Yet earlier this week, a U.S. Department of Agriculture economist said the price of breakfast foods would increase by 8 to 10 percent this year because of higher prices for cereal, eggs, milk, orange juice and other morning mainstays.
The whole issue is getting extra attention now because Congress is writing both a major energy bill and a major farm bill - just as food costs are up in grocery stores. The fallout has the ethanol industry firing back not only at old enemies, like the oil industry, but even at old friends, like livestock groups.
Said Bob Dineen, president of the Renewable Fuels Association, "Critics of ethanol, including those in the animal feeding and oil industries, are engaging in baseless scare tactics to convince Americans that ethanol production will irreversibly increase their grocery bills."
Whatever the cause of higher prices, there's been a sea change in food-pricing psychology. Until recently, food companies had a tough time passing along higher ingredient costs, and that contributed to very low food price inflation. Now everybody is raising food prices. A recent Citigroup research report portrayed this as a bonanza for food companies, declaring that the "Pricing Dam Has Burst!"
Should ethanol take any blame for setting that in motion? The industry doesn't think so.
"We've become a popular whipping boy," said Dineen, the association president. "But that doesn't make it accurate."
Meanwhile, the ethanol boom rolls along. Today, Minnesota Gov. Tim Pawlenty will ceremonially break ground on a 100-million-gallon-a-year ethanol plant in Janesville, owned by U.S. BioEnergy. When completed, it will share the distinction of being the largest ethanol plant in Minnesota.
Prices for farm commodities keep rising, too. Spring wheat prices at the Minneapolis Grain Exchange hit a new 11-year high Thursday, closing at $5.88 a bushel for July delivery.
Tom Webb can be reached at [email protected] or 651-228-5428.Pioneer Press
