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NCGA chief: Ethanol not driving food-price crisis

Agriculture.com Staff 05/06/2008 @ 2:26pm

The ethanol industry's expansion isn't behind rising food prices like many have claimed recently. That's the message from National Corn Growers Association CEO Rick Tolman, who testified before a House of Representatives energy and commerce subcommittee on Capitol Hill on Tuesday.

Specifically, Tolman took up charges that the current Renewable Fuels Standard (RFS), a requirement for the inclusion of renewables into the nation's fuels complex, is not to blame for the recent food price hike. Instead, he said the crude oil market is the major driver.

"In attempting to justify their opposition to the RFS and ethanol expansion, opponents continue to make the claim that higher corn prices are causing higher retail food prices. A look at the facts surrounding food prices simply doesn't support that logic," said Tolman, who was joined in his testimony by Renewable Fuels Association president Bob Dinneen as well as members of the biofuels and grocery industries and natural resources lobby. "More so, the effects of $120 barrel oil have far reaching effects on the consumer price for food."

Tolman cited a recent study by the Oregon Department of Agriculture that found other factors to have much more influence on food prices than ethanol production, including "a growing middle class in Latin America and Asia, drought in Australia, low worldwide wheat stocks, increases in labor costs, a declining U.S. dollar, regional pests, diseases, droughts and frosts." These are in addition to what he called "marginal impacts from ethanol demand for corn and sugarcane."

The federal government should look to the grain trade, not to biofuels, in nailing down the drivers of current pricing trends. The grain trade has exploded in recent months because of a shift toward more speculative investment in the market, not solely the growth of biofuels. It's this value trend that's trickled into the consumer food marketplace, driving up prices, Tolman says.

"If policymakers are truly interested in determining the cause of higher corn prices, our suggestion would be that they start not with the ethanol industry, but with speculative investors in the commodity markets. As the stock market and other traditional investments began to stagnate in mid- to late-2007 and the credit crunch hit financial markets, index funds and "commodity pools" began to pour unprecedented amounts of capital into commodities," he said Tuesday. "Anecdotal reports from commodity analysts suggest that as much as one-quarter of the current price of nearby corn futures is due to speculative investment -- primarily large index funds and commodity pools. This means if you take the speculators out of the market, corn futures would likely be in the $4- to $4.50-per-bushel range."

The ethanol industry's expansion isn't behind rising food prices like many have claimed recently. That's the message from National Corn Growers Association CEO Rick Tolman, who testified before a House of Representatives energy and commerce subcommittee on Capitol Hill on Tuesday.

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