April 9, 2009

CBO: Ethanol had minor impact on food prices

A report released today by the Congressional Budget Office (CBO) said that corn-based ethanol added between a 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices in 2008. (As measured by the consumer price index. The study used figures between April 2007 to April 2008.)

In other words, if you bought $100 worth of groceries, CBO says that ethanol added between 50 and 80 cents to the cost. Yes - a mere 50 to 80 cents.

So what was responsible for the other 4.3-4.6 percentage points - the other 84-90 percent of the increase?

CBO said other factors had a larger role in food prices - particularly higher energy costs (remember oil at $140 and gas at $4/gallon?).

Corn growers and ethanol companies had said all along that oil/energy had a much bigger impact on food prices than did corn ethanol. And that there was plenty of corn to go around.

The Grocery Manufacturers Association - the Grocery Gang - however, blamed corn and ethanol behind price hikes - at the same time most of its members were raking in outstanding profits.

Here's a comment from DTN's Chris Clayton (from his blog): I'm shocked that this wasn't on the front of the New York Times today. And I'm waiting for the Grocery Manufacturers Association to issue a news release saying "Our bad."

CBO also provided a bit of info on the environmental impact of ethanol - citing Argonne National Laboratory that the production, distribution and consumption of ethanol creates about 20 percent fewer greenhouse gas emissions than the equivalent processes for gasoline. That means a reduction of about 14 million metric tons of carbon dioxide and equivalent gases in 2008.

As Clayton concluded: In other words, the CBO basically stated in its report Wednesday that the impact of ethanol on food prices has been over-inflated by critics using ethanol is better for the environment than gasoline.

For the full CBO report, click here (.pdf).

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