Wednesday, April 18, 2007

Cars vs. Food: The Corn Wars Chapter II

It's official: the demand for ethanol to power automobiles is jacking up the cost of our food.

The Wall Street Journal this week details how a doubling in the price of corn largely attributable to a diversion of the grain into a growing ethanol stream is boosting the prices of meat, poultry and cereals in the grocery aisles.

The U.S. Department of Agriculture estimates that food prices will climb up to 3.5 percent this year. But other analysts think the spike could be more like 4.5 percent. And, unlike storms, droughts and other kinds of crop-damaging events, the pressure from ethanol on the corn supply is not a temporary event. Some economists think the government's push for ethanol production to reduce our dependence on a precarious supply line of foreign oil could stress food prices for the next 10 years at least.

The price of corn is now $4 a bushel, the highest it's been in a decade. Some food manufacturers may just be taking advantage of the higher cost of corn to boost prices and increase profits. But there is already evidence that meat packers are paying more for beef and that ranchers are sending their steers to market earlier than usual to avoid higher feed costs.

The CEO of Tyson Foods, the largest U.S. chicken producer, told his shareholders in February: "We have no choice but to pass along the higher costs to our customers who then pass along their higher costs to consumers."

The USDA estimates that U.S. farmers, lured by the gold in corn, this year will plant 91 million acres of corn, the most since 1944. But that means they will be planting less wheat and soybeans, which will drive up food costs elsewhere.

Corn is practically ubiquitous in our country's food chain, appearing in everything from cattle and chicken feed to corn flakes and the high fructose corn syrup in soft drinks. The move to ethanol has also led to a tortilla crisis in Mexico, as discussed in an earlier post.

Meanwhile, the Bush administration in the six years it's been in office has been loathe to do anything to increase fuel efficiency standards. Somehow, America just has to maintain its happy motoring uptopia, even if it means paying more for food.

Is there something wrong with this picture?

To read the full text of the Wall Street Journal report go here.


andrea said...

Thank you for reporting on this. Yes, there is something wrong with this picture.

What would happen if people decided they didn't need to eat all those packaged foods that contain corn or corn syrup. or drink sodas, or cut back or even eliminate their consumption of meat? Would the corn producers notice?

I am thinking they would.

Ed Bruske said...

Thanks for that reinforcement, Andrea. I think when we start to put our automobiles ahead of food it's time to start getting a little more realistic about our lifestyles. The price of oil, tortilla crises, global warming--doesn't it seems like a number of trends are all converging, and not in a good way, over our consumptive behavior?