Ethanol's Affect On Food Prices

The recent rise in corn prices--almost 70 percent in the past six months--caused by the increased demand for ethanol biofuel has come much sooner than many agriculture economists had expected.

According to the United States Department of Agriculture, this year the country is going to use 18 to 20 percent of its total corn crop for the production of ethanol, and by next year that will jump to 25 percent. And that increase, says Marshall Martin, an agriculture economist at Purdue University, "is the main driver behind the price increase for corn."

The jump in corn prices is already affecting the cost of food. The most notable example: in Mexico, which gets much of its corn from the United States, the price of corn tortillas has doubled in the past year, according to press reports, setting off large protest marches in Mexico City. It's almost certain that most of the rise in corn prices is due to the U.S. ethanol policy, says David Victor, director of the Program on Energy and Sustainable Development at Stanford University.

The rising food costs fueled by ethanol demand are also affecting U.S. consumers. "All things that use corn are going to have higher prices and higher cost, to some extent, that will be passed on to consumers," says Wally Tyner, professor of agriculture economics at Purdue University. The impact of this is being felt first in animal feed, particularly poultry and pork. Poultry feed is about two-thirds corn; as a result, the cost to produce poultry--both meat and eggs--has already risen about 15 percent due to corn prices, says Tyner. Also expect corn syrup--used in soft drinks--to get more expensive, he says.

The situation will only get worse, says David Pimentel, a professor in the department of entomology at Cornell University. "We have over a hundred different ethanol plants under construction now, so the situation is going to get desperate," he says. Adding to the worries about corn-related food prices is President Bush's ambitious goal, announced in his last State of the Union address, that the United States will produce 35 billion gallons of ethanol by 2017.

Still, some suggest that the overheated ethanol market could soon cool down. "Politicians will see that, first of all, it is not helping our oil independence," says Pimentel. "It is increasing the price of food for people in the U.S., it is costing an enormous sum of money for everyone, and it is contributing to environmental problems. But I can imagine it is going to take another year or more before politicians realize they have a major disaster on their hands."