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Energy Advisor Says a Host of Factors Affect Food Prices

Posted by Sarah Bittleman, senior energy advisor to Secretary Vilsack in Energy
Nov 30, 2012

Rob Green’s recent Wall Street Journal op-ed “The cause of higher grocery bills isn’t the drought. It’s the failed federal ethanol policy” fails to take into consideration a host of factors, other than demand for corn, that affect food prices.

In the domestic and global markets commodity, labor, transportation, energy costs, processing, and marketing costs all contribute to what we pay for food in our local grocery store or restaurant. In some cases, factors such as higher oil prices affect one or more of these underlying costs producing higher domestic and world food prices.

While any rise in food prices is an adjustment, right now food prices are actually rising at a rate that is not out of the ordinary, unlike 2008 when there were spikes in some food prices worldwide. Despite those more significant food price increases, the World Bank found that biofuels production, domestically and internationally, only accounted for about four percent of the 2008 cost increase, while the rapid increase in oil prices at the same time actually accounted for a much larger portion of the spikes.

USDA's Economic Research Service estimates that farmers receive about 14.1 percent of the total consumer food dollar (based on the 2010 average food dollar). This suggests that if the price of all food commodities were to double at the farm level, and other production processes were held fixed, food inflation would rise just over 14 percent.

However, the chance of all other production processes, such as the cost of energy, remaining fixed, are small. That is why America must continue to invest in the homegrown renewable energy that will help balance rising energy costs. Being able to produce more domestic energy from all sources, including renewable fuels, will improve energy security, boost the rural economy and keep the cost of traditional fuels lower. For example, when Hurricane Katrina damaged oil and refining capacity in the Gulf, the Department of Energy estimated that ethanol reduced the price of gasoline between $0.25 and $0.35 per gallon.

We also know that renewable fuels help hundreds of thousands of families by supporting good jobs – particularly in rural America. Industry experts project that there will be approximately 800,000 jobs created once we produce 36 billion gallons of ethanol annually, as required by the Renewable Fuel Standard.

Therefore, it is inaccurate to portray renewable energy as either the driving force behind food cost inflation, or as a negative economic factor for our nation. Domestic production of renewable energy has not adversely affected your grocery market on the corner – and in the long term, may well keep fuel and food prices at more reasonable levels for Americans.

Category/Topic: Energy