Biofuel Subsidies Impact on Prices Limited to Corn
Posted by Truth About Trade & Technology
Friday, 02 May 2008
The Wall Street Journal
Federal government subsidies to ethanol producers are having a sizable impact on food prices, but the impact is limited to corn-based food goods and will likely subside over time, the chief economist at the Department of Agriculture told Congress.
Joseph Glauber told a hearing of the Joint Economic Committee that ethanol subsidies were having an “important impact” on corn prices, directly pushing up the cost of corn-based food. He told the panel that retail food prices increased by 4% in 2007, the fastest since 1990. Prices are forecast to grow between a further 4%-4.5% in 2008, he said. But he said the ethanol subsidies had little to do with sharp increases in wheat and rice prices.
That has had more to do with the rapid increase in demand from countries like China and India for high quality foods, and adverse weather conditions in major wheat producers like Australia and Canada, which has severely reduced yields. Glauber said he anticipated the ethanol impact on the price of corn to moderate over time.
Sen. Charles Schumer (D., N.Y.) the chairman of the economic panel, said that due to federal government subsidies to ethanol producers, corn accounted for a quarter of total crop output across the U.S. in 2007, from less than 15% in 2005. “This has obviously raised the price of corn and grains because farmers have shifted more land into corn production, squeezing domestic supplies of wheat, soy, and many other crops,” Schumer said.
Others were far more skeptical of any contribution to food prices from the move towards biofuels. “Don’t be blaming the farmer and ethanol for the high price of food,” said Sen. Charles Grassley (R., Iowa), who gnawed on a piece of corn at a press conference to show reporters that some types of corn aren’t suited for eating.
Grassley cited other factors, such as drought in Australia, import duties on food, growing demand from China and India, speculation in commodities markets, and rising oil prices that drive up the cost of transporting agricultural products.
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