CBO Report Shows Ethanol Has Little Impact on Food Prices

Several factors were behind spike in food prices.

The Congressional Budget Office has released a report that shows ethanol has a minimal impact on the price for food. Requested by Representatives, Ron Kind, D-Wisc., Rosa DeLauro, D-Conn., and James McGovern, D-Mass., the study examined the relationship between increasing production of ethanol and rising prices for food.

The CBO estimated how much of the rise in food prices between April 2007 and April 2008 was due to an increase in the production of ethanol. Their figures show that expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1% increase in food prices measured by the consumer price index. Over the same period, certain other factors had a greater effect on food prices than did the use of ethanol as a motor fuel.

"The report released by the Congressional Budget Office confirms what we've known for some time – the impact of ethanol production on food prices is minimal and that energy was the main driver in the rise of food prices," said Growth Energy CEO Tom Buis. "But now that corn and energy prices have fallen dramatically, we hope CBO will look at why grocery prices have not dropped accordingly. Growth Energy has called on Congress to investigate food prices so we can get to the bottom of this issue."

Energy prices do seem to be the major culprit in raising the price of food. After examining approximately 25 food price studies and conducting their own analysis, a team of economists at Purdue estimated that energy prices accounted for 75% of the increase in corn prices. Excessive speculation in the commodities market also played a significant role, helping to drive up the costs of almost every commodity traded, including corn, coffee, and crude oil.

The CBO report also looked at ethanol's role in reducing greenhouse gases and the amount of gasoline consumed. It found that use of ethanol reduced gasoline consumption in the United States last year by 4%. Using data from a study conducted by the Argonne National Laboratory, the report said that the production, distribution, and consumption of ethanol will create about 20% fewer greenhouse gas emissions than the equivalent processes for gasoline. For 2008, such a finding translates into a reduction of about 14 million metric tons of carbon dioxide and equivalent gases.

To read a copy of the CBO report, click HERE.

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