Food AND Fuel
U.S. corn growers are proud to work hard and be able to meet the demand for corn for food, feed, fuel and fiber. We’re also proud of the important role corn ethanol plays in reducing our nation’s dependence on foreign oil, in helping protect the environment and in boosting our nation’s economy. These resources were prepared to help you understand the truth regarding ethanol’s positive impact.
Driven by the American public’s demand for alternatives to high-priced foreign oil, the production of ethanol in the United States has more than tripled since 2003. Despite the well-documented economic and environmental benefits of expanded biofuels production, some critics have alleged increased ethanol production is diverting grain from food and feed markets and leading to higher retail food prices.
However, a thorough examination of the facts surrounding the so-called “food versus fuel” debate reveals there is no need to choose between using grain for feed and food or using grain for fuel. Additionally, the fact that food prices continued to rise while agricultural commodity prices plunged in the second half of 2008 is proof that grain and other farm products play a minor role in retail food prices. Tremendous increases in the productivity of U.S. farmers have ensured ample supplies of grain are available for domestic and international use as food, feed and fuel. Further, one-third of every bushel of grain processed into ethanol is enhanced and returned to the animal feed market in the form of distillers grains, corn gluten feed or corn gluten meal.
A number of recent independent studies conducted by governmental agencies, universities, financial analysts, and others conclusively show that the increasing use of grains like corn for ethanol production plays a negligible role in the recent rise in U.S. food prices. These analyses acknowledge that a number of simultaneously occurring factors—including rising energy costs, speculation in commodities markets, currency fluctuations, underinvestment in agricultural technology, changing diets in developing countries, and rising agricultural production costs—all contributed to higher food prices around the world in 2007-2008.
Despite plunges in commodity prices, food prices continue to rise
Based on the recent arguments of the grocery industry (Grocery Manufacturers Association), meat processor (American Meat Institute) and others, lower grain prices should mean lower retail food prices for consumers. Thus far, however, reduced grain and oilseed prices have not translated to lower retail food prices. Food inflation in the second half of 2008 continued to increase, despite pronounced decreases in the prices for corn, wheat, soybeans, crude oil, gasoline, and other agricultural and energy commodities.
The plunge in commodity prices demonstrates that increased use of corn for ethanol is not a major factor driving higher-than-normal commodity and food prices. In fact, as ethanol production continued to increase in 2008, corn prices fell—a clear signal that ethanol is not a major factor currently driving corn prices. Food prices have remained at elevated levels despite a dramatic drop in grain and oilseed prices over the past several months, proving that many other factors are behind today’s elevated food prices.
So, why haven’t food prices receded along with prices for other staple consumer items? According to economists, consumers are facing “sticky prices” for food items. Sticky prices, as reported by the Associated Press, occur “when companies slap higher prices on products and keep them there even though the rationale for the price hikes — such as soaring oil prices — is gone.”
Dramatic increases in crop productivity have ensured adequate supplies of corn are available for all uses
The amount of corn harvested per acre has increased rapidly in the United States in recent decades. Improved farming practices and seed technology advances are responsible for the dramatic increases in corn yields over the past four decades. Average corn yield per acre has more than doubled in the last 35 years, from 71.9 bushels per acre in 1974 to an expected 152.3 bushels per acre in 2008.
Ohio has seen record yields just in the past five years, exceeding national averages of 165 bushels per acre; this shows how farmers grow MORE corn on LESS land.
During the decade of the 1970s, corn yields averaged 90.1 bushels per acre. From 2000 to 2007, yields have averaged 144.8 bushels per acre. The record yield of 160.4 bushels per acre was achieved in 2004. Seed companies such as Monsanto and Pioneer project average corn yield will reach 250 to 300 bushels per acre by 2030.
Increased yield per acre has allowed farmers to dramatically increase total corn production without significantly expanding corn acreage. In 1977, farmers planted 84.3 million acres and harvested 6.5 billion bushels. In 2007, growers planted 93.6 million acres and produced a record crop of 13.1 billion bushels. Thus, the size of the crop more than doubled, while acreage expanded just 11 percent.
Despite increased ethanol production, the amount of corn available for other uses is trending upward
One common criticism of the ethanol industry is that it “diverts” corn from other markets. However, larger corn supplies have allowed increasing amounts of corn to be used for ethanol without reducing the amount of corn left over for other uses. Even after 2.2 billion net bushels of corn were used for ethanol in 2007/08, nearly 12.2 billion bushels of corn (and equivalent distillers grains) were available for other uses. This means more corn was available for non-ethanol uses than ever before.
The ethanol industry’s impact on the corn market is blunted by the fact that one-third of every bushel processed remains in the animal feed market. Because of this, the amount of corn used for ethanol must be viewed in a “net usage” context. USDA estimates 4.1 billion bushels of corn will be used for ethanol in 2008/09, but net usage will be closer to 2.9 billion bushels because of the displacement impact of distillers grains and other feed co-products.
The fact that corn exports nearly achieved a new record in 2007/08 is further evidence that corn is not being diverted from other uses. Further, livestock feed use of corn was the third-highest ever in 2007/08.
Did you know that one-third of every bushel of grain processed by the ethanol industry is enhanced and returned to the animal feed market?
The ethanol process utilizes only the starch portion of the corn kernel for ethanol production. The remaining protein, fat, fiber and other nutritional components remain available for use as animal feed. In distillers grains, these remaining nutritional components from the corn kernel are essentially concentrated by a factor of three, meaning typical distillers grains have at least three times as much protein and fat as an equivalent amount of corn.
In the 2007/08 marketing year, the U.S. ethanol industry generated approximately 23 million tons of high-quality feed for beef cattle, dairy cows, swine and poultry, making the renewable fuels sector one of the larger feed processing segments in the United States. This amount of feed is roughly equivalent to the combined amount of total feed consumed last year by cattle on feed in Texas, Kansas, Nebraska, and Colorado—the nation’s four largest feedlot states. Grain ethanol co-products, including distillers grains, corn gluten feed and corn gluten meal, are expected to approach 30 million metric tons in 2008/09.
Even with recent growth, the U.S. ethanol industry still consumes a small portion of the world's grain
On a global scale, U.S. ethanol production is expected to consume approximately 4.5 percent of the 2008/09 world coarse grains supply (corn, grain sorghum, barley, oats, rye, and millet) on a net basis. It is important to remember coarse grains are used to feed animals, not humans directly. Food grains like rice and wheat provide a much larger share of calories directly to humans. Very little wheat is used globally for ethanol production, and rice is not used as a biofuels feedstock. When all grains are considered (coarse grains, rice and wheat), the U.S. ethanol industry is likely to consume just 2 percent of the world’s grain supply.
Because grains used for ethanol represent a small share of total world grain use, it seems logical that the U.S. ethanol industry is not a significant driver of land use change decisions. In 2007/08, just 0.9 percent of world major cropland was needed to meet the grain requirements of the U.S. ethanol industry. When the production of feed co-products are factored in (18 pounds of every bushel of grain processed into ethanol returns to the feed market), the net global cropland use impact of the U.S. ethanol industry was 0.6 percent.
Increased use of corn for ethanol has negligible impacts on food prices
Numerous cost factors contribute to retail food prices. According to USDA, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising, profits and other marketing factors account for 43 cents of the consumer food dollar. In fact, just 19 cents of every consumer dollar can be attributed to the actual cost of food inputs like grains and oilseeds.
Retail food products such as cereals, snack foods, and beverages sweetened with corn sweeteners contain very little corn. Therefore, fluctuations in the price of corn are not often reflected in the retail prices for these items. As an example, a standard box of corn flakes contains approximately 10 ounces of corn, or about 1/90th of a bushel. Even when corn is priced at $5.50 per bushel, a box of corn flakes contains 6 cents worth of corn.
A number of recent studies have examined the impact of increased U.S. ethanol production on food prices. The results of these analyses have clearly shown ethanol has only a fractional influence on food prices. Findings from several of the studies are below:
An April 2008 study by Texas A&M University concluded that “…corn prices have had little to do with rising food costs.” The authors of the study found that the “…underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel oil.”
The White House Council of Economic Advisors in May 2008 concluded that, “Ethanol accounts for somewhere between 2 and 3% of the overall increase in global food prices.” The council also found, “Had it not been for ethanol, (U.S.) food prices would have gone up by 4.25% as opposed to 4.5%.”
A June 2008 analysis by the U.S. Departments of Energy and Agriculture found that “…current biofuels-related feedstock demand plays only a small role in global food supply and pricing.” Further, the researchers determined “…increased ethanol and biodiesel consumption accounting for only about 4-5% of the total increase (in food prices) while other factors accounted for 95-96%...”
“Grocery bill still high? Blame sticky prices.” AP. Oct. 19, 2008. http://www.msnbc.msn.com/id/27269544/
“The Effects of Ethanol on Texas Food and Feed.”
http://www.afpc.tamu.edu/pubs/2/515/RR-08-01.pdf
“Fact Sheet: Leading the Fight Against Hunger.” http://www.whitehouse.gov/news/releases/2008/05/20080501-22.html
June 11, 2008. Enclosure to Letter from Secretaries Bodman and Schafer to Sen. Jeff Bingaman (D-N.M.), Chairman, Senate Committee on Energy and Natural Resources.
“What’s Driving Food Prices?” http://www.farmfoundation.org/news/templates/template.aspx?articleid=404&zoneid=26
“Ethanol and Food Prices – A Preliminary Assessment.” National Corn Growers Association
“Corn Prices Near Record High, But What About Food Costs?” http://www.ers.usda.gov/AmberWaves/February08/Features/CornPrices.htm
A Tale of Two Corns
When you’re driving down a highway in the Corn Belt and see acre after acre after acre of corn, don’t jump out and grab an ear for some impromptu corn on the cob. Chances are, it’s the wrong kind of corn.
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How Much Ethanol Can Come From Corn?
The considerable increase in corn use for ethanol has caused many traditional corn customers to question how feed, food and export markets will be affected by increased ethanol production. This study addresses these questions.
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