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Revisiting the RFS, Part 3: Biofuels and Food Prices

Part 3 of coverage of Tuesday’s House Energy and Commerce Committee hearing on the Renewable Fuel Standard, with the perspectives of witnesses on biofuel production and rising food prices. For an overview of the issues surrounding global food, see “Food Price Crisis 101″ at the Center for American Progress. For info on how the U.S. can create biofuels from materials that do not compete with food crops, see “Alternative Cellulosic Biomass By the Numbers.”

Bob Dinneen, CEO and President of of the Renewable Fuels Association testified that ethanol production has a very small effect on food prices, and may actual be keeping them down. He told committee members that corn growers heeded the market signal sent by the RFS mandate last year, producing an additional 2.5 billion bushels of corn over the previous year’s yield, of which only 600 million bushels went towards producing ethanol. Thus, he argued, there was actually an increase in available corn.

Dinneen followed up by citing research which shows that only two percent of the world supply of corn is used goes into ethanol production and that only three percent of food price increases was attributable to that production. He said the main driver of increased food prices was the price of oil. Removing the RFS, he said, would only increase the price of energy, driving up food prices even further.

Rick Tolman, CEO of the National Corn Growers Association backed up Dinneen’s claim, explaining that the main culprit of increased food prices is the price of oil, which plays a significant role in each part of the food production chain. Tolman cited a recent study suggesting that a $1-per-gallon increase in the price of gas has three times the impact on food prices than a $1-per-bushel increase in the price of corn. He also testified that only 19 cents of each consumer dollar in the United States can be attributed to farm products such as grain, oil seeds, and meat. Labor costs 38 cents, and transportation, packaging, energy, and other costs make up the remaining 43 cents. He cited USDA economist Ephraim Liebtag, who calculates that a 50 percent increase in corn prices would translate to an increase in retail food prices of less than one percent.

Don’t remove the mandates, but don’t increase them either was the recommendation from Scott Faber, Vice President of Federal Affairs for the Grocery Manufacturers Association. He acknowledged that many factors are involved in the recent spike, “including increasing global food demand, export and other restrictions, adverse weather in some countries, commodity speculation, and higher energy prices.” He said that the one factor that is under the control of Congress is the package of “mandates and subsidies diverting food into fuel production.” Congress should be mindful, he said, that rising food prices are a significant challenge to the poorest twenty percent of Americans who spend about one-third of their after-tax income on food.

The food price spike has also pushed millions of people around the world in to poverty, he said, forcing food aid programs to ration their supplies. He asked Congress to revisit the mandate schedule; to push harder for second- and third- generation biofuels; and to increase support of international food programs and agricultural development.

Fortunately, there is a sufficient supply of biofuel feedstocks that do not compete with food crops: see “Alternative Cellulosic Biomass By the Numbers.”

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