Grain Bins


SDCUC questions food prices

Posted on November 17, 2008

While the price of grain and other commodities have dropped nearly in half over the past several months, food prices continue to stay at historically high levels pointing to a serious disparity in the marketplace.

Earlier this year, food processors, retailers and other critics blamed corn-based ethanol for rising grain prices and increased costs in the grocery aisle. Today now that grain prices are dramatically less, food prices should have followed suit, given that logic. However, the fact food prices remain high discredits that deceitful campaign against the corn and ethanol industries.

“We’ve been saying this all along and now consumers can see for themselves: The impact corn and ethanol have on food prices has barely a ripple effect and consumers should be outraged at the price gouging by food companies,” said Reid Jensen, president of the South Dakota Corn Utilization Council. "Since these allegations were made, commodity prices have dropped nearly in half, ethanol production continues to expand, but the price of corn flakes remains the same."

This quarter alone, Kraft boasted a net income of $1.4 billion – more than double last year's results. Sales at Kellogg's climbed 9.5 percent and third-quarter net income increased from $305 million last year to $342 million this year.

Targeting farmers and the ethanol industry, organizations such as the Grocery Manufacturers Association (GMA) and the National Restaurant Association have repeatedly blamed higher food prices on biofuels. But according to the United States Department of Agriculture, the farm value of products producers supply to manufacturers accounts for only 19 cents of every dollar of processed food. The remaining 80 cents is driven by labor, packaging, advertising and other costs, which have little to do with corn-based ethanol.

The Renewable Fuels Association recently released a report that asked the question, “Will the plunge in grain prices mean lower food prices at the supermarket?”

As the RFA report states, ”… it seems highly unlikely that reduced grain and oilseed prices alone will lead to lower retail food prices, as there are many complex factors that influence retail food pricing.” This despite unfounded claims earlier this year by food companies that ethanol production was the reason for higher grain prices and ultimately higher food prices.

The report concludes, “Without question, the plunge in commodity prices in the last several months has disproven the unsupported claim that biofuels production was the dominant factor driving grain and oilseed prices higher.”

Grocery manufacturers are making record profits while Americans are struggling, and they're actively blaming it on ethanol. Ironically, ethanol has been saving money for both consumers and grocers by keeping the price of gas down.

Studies from Purdue University, Texas A&M, the White House Council of Economic Advisers, Iowa State University, etc. have all concluded the price of oil, not ethanol, was the major driver behind food price increases. Commodity speculation, a declining dollar and an increasing middle class in China, India and other markets also played a role.

"This should end the debate once and for all," Jensen said. “Consumers, go back to your roots – farmers provide the most economical and safe food source in the world. Consumers and farmers both deserve acknowledgment of the truth.”

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