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Simmering food vs. fuel debate

Agriculture.com Staff 05/09/2008 @ 12:00pm

The drumbeat of the food vs. fuel debate continues. Record gas prices, record corn prices and, this week, US Senators asking the EPA to freeze the ethanol mandates-it's just this week's mix of news items to add "emotional fuel" to the fire.

Every so often, someone realizes that it will take reductions in energy consumption by all of us to make a meaningful impact on food and fuel prices. That means me and that means you. There's always the question "who's to blame?" and the answer is right in the mirror.

Meanwhile, straight talk surfaces every so often in the food vs. fuel debate. Ethanol is a fairly new influence on food and fuel prices and, therefore, is a convenient scapegoat. There is very little economic research to back up each side's claims. But with the growth of the ethanol industry, there is more research being done.

The Center for Agricultural and Rural Development (CARD, Iowa State University) released a research paper which calculated consumers are saving $.29 to .40 per gallon of gas because of ethanol. The amount of ethanol produced (more than 7 billion gallons in 2007) is small compared to the amount of gasoline (146 billion gallons). It is amazing what affect basically 5 percent of supply has on price.

The most obvious cost to the American taxpayer is the ethanol blenders tax credit ($.51 per gallon). This tax credit has yielded a big return. The US has not received about $3.6 billion dollars of taxes. This has yielded a $36-45 billion savings to the consumer. That's about a 10 to 1 ratio--not a bad investment.

Here's the CARD study:

www.card.iastate.edu/publications/synopsis.aspx?id=1076

Below is another study from Texas A & M that addresses the food vs fuel issue.

www.afpc.tamu.edu/pubs/2/515/RR-08-01.pdf

The final article is the testimony from Dr. Bruce Babcock of CARD to Congress yesterday (May 7, 2008).

www.card.iastate.edu/presentations/babcockoralstatementforposting.05-07-08.senatecommittee.pdf

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The drumbeat of the food vs. fuel debate continues. Record gas prices, record corn prices and, this week, US Senators asking the EPA to freeze the ethanol mandates-it's just this week's mix of news items to add "emotional fuel" to the fire.

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