Minnesota Dept of Agriculture mda.state.mn.us/news/publications/renewable/ethanol/rumorvsreality.pdf Ethanol: Rumor vs. Reality Rumor: Increased ethanol production has dramatically increased consumer food prices. Reality: The impact of ethanol on food prices has been greatly exaggerated. Retail food products such as cereals, snack foods and beverages contain relatively little corn. For example, a standard box of corn flakes contains approximately 10 ounces of corn. Even when corn is priced at $4 per bushel, a box of corn flakes contains less than a nickel’s worth of corn (Source: U.S. Department of Agriculture Economic Research Service). Food prices have not increased proportionately with corn prices. According to the U.S. Congressional Budget Office, corn prices doubled from April 2007 to April 2008 while consumer prices rose by just over 5 percent. During the same period, the CBO found that the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI). Moreover, as corn prices fell from approximately $8 per bushel in July 2008 to $4.25 per bushel in October 2008, food prices did not exhibit comparable downward trends. So what does influence retail food prices? According to the U.S. Department of Agriculture, labor costs account for 38 cents of every dollar a consumer spends on food. Packaging, transportation, energy, advertising and profits account for 24 cents of the consumer food dollar. Just 19 cents of every consumer dollar can be attributed to the actual price of food inputs. The Congressional Budget Office reported that several factors—including rising global demand for meat and animal feed, the depreciation of the U.S. dollar, and concerns about poor corn harvest conditions—contributed significantly to the rise in corn prices during the spring of 2008. One recent study suggests that energy prices have twice the impact on retail food prices that grain prices do (Source: John Urbanchuk, LECG, LCC, June 2007). Over the past two and a half years, increases in crude oil prices have added an additional dollar per gallon to the price of regular gasoline. Americans consume about 140 billion gallons of gasoline each year, so a dollar per gallon price increase equates to a $140 billion impact. Seven billion bushels of corn each year are used for food and feed purposes, so an increase of $1 in the price of corn results in a $7 billion impact on prices consumers pay (Source: Acting USDA Secretary Chuck Conner, U.S. Consumer Federation Address, Sept 28, 2007). Between 2007 and 2008, corn producers’ expenditures on energy grew by 35 percent and fertilizer expenditures climbed by 50 percent. Overall, during that period, the cost of producing corn rose by 31 percent (Source: Congressional Budget Office, 2009). Rumor: As current ethanol production continues to grow, the U.S. will not be able to meet the demands of global food and feed markets. Reality: The sad reality is that world hunger is generally due to problems with food access, not food production. According to the United Nation’s Food and Agriculture Organization, the most likely causes of hunger are a lack of infrastructure and access to capital—not food scarcity. U.S. farmers can easily meet demands for U.S. corn from foreign markets. Even though corn use for ethanol has risen dramatically over the past several years, American corn growers continue to serve as the world’s top exporter of corn. USDA’s 2009 forecast predicts that U.S. corn exports will remain steady at about $9 billion due to record corn harvests. There is not a direct relationship between commodities and food as some might assume. Both corn and soybeans are used primarily in the production of meat through feed for livestock and not used in actual retail food products (with the exception of salad oil products). The amount of field corn used for human food processing (starch, sweetener, oil and cereal) ranges between 5 percent and 8 percent of total corn usage. Also, corn demand for food processing markets has been flat for 15 years (Source: USDA, Pro Exporter Network). Ethanol production utilizes only the starch portion of the corn kernel, which is abundant and of low value. The remaining vitamins, minerals, protein and fiber are sold as high-value livestock feed (Source: Renewable Fuels Association). A high-quality feed product known as ―distillers grains‖ is a co-product of ethanol production that can be fed to livestock and poultry, helping to replace corn and soybean meal that can then be used for other purposes. According to the U.S. Grains Council, one bushel (56 pounds) of corn used in the dry mill ethanol process yields about 17 pounds of distillers grains. In 2008, the U.S. ethanol industry produced approximately 27.7 million tons of distillers grains, up from approximately 23 million tons in 2007. In 2009, that figure is expected to increase to 31.5 million tons (Source: FAPRI, Iowa State University). According to the USDA, each bushel of corn used to produce ethanol results in a reduction of about a fifth of a bushel of direct corn feeding due to the use of distillers grains in rations. The United States also exports large amounts of distillers grains annually—in 2008/2009, the U.S. exported nearly 5 million metric tons to various world markets including Mexico, Canada, and Turkey, among others (Source: USDA Economic Research Service). While the United States dominates world corn trade, exports account for only a relatively small portion of demand for U.S. corn (about 15 percent). This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. Rumor: There won’t be enough corn to continue the strong growth in the ethanol industry. Reality: Thanks to continued increases in yields and ethanol processing efficiency, farmers are expected to be able to meet rising demand for corn. The amount of corn farmers can grow per acre has quadrupled in the last five decades – from 40 bushels per acre in 1950 to more than 160 bushels per acre in 2009. If yields continue to increase at the rate of the last 10 years, corn yields will reach 180 bushels per acre by 2015. An increase of just two bushels per acre results in an additional 150 million bushels of corn, which can produce 420 million gallons of ethanol (Source: National Corn Growers Association). At the same time, technology improvements will mean that we can squeeze more out of each bushel of corn. The average ethanol conversion rate today is 2.8 gallons per bushel, up from 2.5 gallons per bushel several years ago. The conversion rate may soon be as high as 3 gallons per bushel because of emerging processing technologies. Rumor: Ethanol supporters claim it is the total answer to our nation’s energy independence. Reality: Instead of seeing ethanol as a silver bullet, supporters describe it as a step in the right direction for reducing our nation’s dependence on foreign oil. While imperfect, today’s renewable fuels create a necessary foundation for future renewable fuel technologies that will offer even greater environmental and economic benefits. Just as the early biplanes were necessary first steps toward transcontinental air travel, today’s renewable fuels sector is a first step down a road that supporters believe will ultimately lead to energy independence. As crop production and ethanol processing technologies improve, the carbon footprint per unit of renewable energy decreases. In contrast, as crude oil and other fossil fuels become harder to find, their carbon footprint increases. Without corn ethanol and soy biodiesel, the U.S. would not have the necessary foundation in infrastructure, markets, and technology to support future efforts to commercialize cellulosic ethanol and other advanced biofuels. By maintaining the renewable fuels industry of today, we are building a better framework for tomorrow’s technology. Many of the concerns about renewable fuels being raised on a national level today mimic those raised decades ago when ethanol was first emerging as a fuel option in Minnesota. Our experience has shown that ethanol can provide a real-world boost to our economy and our environment even though it has practical limitations and technical obstacles, like any other energy option.
Posted on: Thu, 20 Jun 2013 18:10:58 +0000
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