Energy prices impact food prices more than corn

Rising energy prices have twice the impact on consumer food prices than corn has according to a new report released today. The South Dakota Corn Utilization Council (SDCUC) applauds the proof that corn is not the core culprit in rising food prices.

“Enough is enough, it’s time to put an end to the corn blame for food price increases over the past several months,” said Jerry Rubendall, president of the SDCUC. “Americans pay more at the grocery store because energy prices are accelerating.”

Agricultural economist, Dr. John Urbanchuk, director, LECG, LLC, recently completed a report entitled “The Relative Impact of Corn and Energy Prices in the Grocery Aisle,” an analysis of food, energy and corn prices. He found that energy prices have twice the Consumer Price Index (CPI) impact on food costs. According to the study, a 33 percent increase in crude oil prices – which translates into a $1 per gallon increase in the price of conventional regular gasoline – results in a 0.6 percent to 0.9 percent increase in the CPI for food while an equivalent increase in corn prices ($1 per bushel) would cause the CPI for food to increase only 0.3 percent.

“Energy costs have a much greater impact on consumer food costs as they impact every single food product on the shelf,” said Urbanchuk. “Energy is required to produce, package and ship each food item. Conversely, corn prices impact just a small segment of the food market as not all products rely on corn for production. While it may be more sensational to lay the blame for rising food costs on corn prices, the facts don’t support that conclusion. By a factor of two-to-one, energy is the chief factor determining what American families pay at the grocery store.”

Corn and energy prices both affect consumer food prices, Urbanchuk notes. However, since increases in corn prices are limited to a small portion of the overall CPI for food, an increase in corn prices resulting from higher ethanol demand or a supply disruption such as a major drought is expected to have about half the impact of the same percentage increase in petroleum and energy prices.

“South Dakota is developing an ethanol industry which is increasing refining capacity and thereby actually reducing energy prices,” said Rubendall. “South Dakota corn producers are stepping up to the challenge of producing enough corn to fill both fuel and food markets with corn planting intentions up 9 percent in the state this season. In the end, we are actually helping to stabilize increasing energy and food costs.”

Critics contend that the recent increase in retail food prices measured by the CPI for food is the direct result of higher corn prices caused by ethanol demand. While petroleum and energy prices affect virtually all aspects of agricultural raw material transportation, processing, and distribution of all finished consumer food products, corn prices affect only a segment of consumer foods – livestock, poultry and dairy.

According to the report, most of the increase in food prices over the past eight months was the result of foods not impacted by corn such as fish, fruits and vegetables, sugar and sweeteners, and food away from home. Meat, poultry, eggs, and dairy products – the foods where corn is a major input and are most affected by rising corn prices – accounted for about 0.2 percent of the 1.2 percent acceleration in food price inflation between September 2006 and April 2007. Rising energy prices had a more significant impact on food prices than did corn.

“This is a message the SDCUC has been delivering on behalf of corn producers for months,” said Rubendall. “We know that a box of corn flakes uses less than a nickel’s worth of corn and a six pack of soda uses only 10 cents worth of corn for production. This study solidifies what we’ve known all along: Corn is not the catalyst for the food price increase.”