Economist: Ethanol affects grain prices more than food

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BY JOSH FUNK / The Associated Press

OMAHA — A Nebraska agricultural economist estimates that ethanol production is responsible for as much as 40 percent of the recent increase in grain prices but very little of the increase in U.S. food prices.

University of Nebraska-Lincoln economist Richard Perrin said Tuesday that ethanol accounts for about 1.2 percent of the increase in U.S. food prices because most of the increases in corn prices are not passed on to consumers.

Perrin said grain prices have roughly doubled in the last two years. He calculated that ethanol is responsible for about 40 percent of that increase.

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(LJS file)

(LJS file)

The doubled grain prices contributed about 3 percent to the increase in U.S. food prices, and 40 percent of 3 percent comes to about 1.2 percent.

However, Perrin said ethanol has likely had a bigger impact on food costs in poorer parts of the world because grains account for a larger portion of people’s diets there and because poor people devote a larger portion of their incomes to food.

Perrin said ethanol may account for 12-15 percent of the increase in food prices in poor nations.

“A doubling of grain prices can absolutely devastate families in poor countries and put them at the edge of starvation, even though it constitutes a barely noticeable inconvenience to most families in the U.S.,’’ he said.

Perrin said his preliminary conclusions about how ethanol production has affected food prices are similar to other recent reports on the subject, but his estimate of ethanol’s effect on food prices in poor nations is much larger than other reports suggest.

White House economic advisers have estimated that ethanol made from corn is responsible for just 2-3 percent of the overall increase in global food prices, which are up more than 40 percent this year over last year.

People in poor nations often rely on grains besides corn for food, but Perrin said he believes U.S. production of ethanol from corn has an effect on prices for other grains because all grain prices are closely related.

Perrin said he plans to continue exploring other factors that may have contributed to the increase in food prices, including higher energy costs, greater demand for food, speculative purchases of grains and unusually low wheat production.

Ethanol production is a major industry in some states, including Nebraska, which ranks second nationally in ethanol production.

The state’s Ethanol Board says Nebraska’s 21 ethanol plants annually produce more than 1.3 billion gallons of ethanol, using nearly a half billion bushels of corn.

Perrin works in UNL’s Department of Agricultural Economics, which is part of the Institute of Agriculture and Natural Resources.