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Ag officials put blame on oil in food vs. fuel debate

By MEGGIE I. FOSTER
Assistant Editor

CLOVERDALE, Ind. — Even while Midwesterners suffer and attempt to recover from severe flood damage, one controversial debate never ceases to lose momentum – food versus fuel.
“When I am accused, or the renewable fuel industry is accused of starving children around the world, when in fact the United States had world record exports both dollar-wise and volume-wise in 2007, that’s a falsehood that needs to be explained away,” said Indiana Farm Bureau President and recent flood victim Don Villwock, opining his views of how the Grocery Manufacturers Association (GMA) and the media are falsely pointing their finger at farmers as the reason for the 5 percent increase in U.S. food costs.
“GMA had to blame someone to take the blame off them, and they choose to take on a bunch of farmers. I’m upset about that, and I resent it,” said Villwock, an advocate for Indiana agriculture.
Only to reopen the wound, the Putnam County Farm Bureau of Indiana hosted a news conference on June 11 featuring guest speaker Bob Young who serves as chief economist for the American Farm Bureau Federation. Young, alongside Villwock and Putnam County grain and pork producer Chris Mann helped provide perspective, background and evidence to support their claim that the ethanol industry is not solely responsible for the recent skyrocket in domestic food prices.
However, admittedly Young explained that ethanol, does, unfortunately represent a small percentage of the increase in commodity and domestic food costs.
Young conceded that biofuels may be responsible for anywhere from 3 to 30 percent of the increase in food costs.
“We need to have a long conversation about that other 70 percent to 97 percent of the causes of increasing commodity prices,” Young said. “Yes, biofuels have played a role, but it is by far not the only thing and for that matter not even the majority of things causing changes in our commodity prices.”
Within the 5 percent increase in domestic food costs, Young said that 44 percent can be attributed to higher energy costs, 20 percent to increased labor costs, while an “extra 2.5 percent is blamed on the ethanol industry.”
“That’s not quite $20 billion, which I know sounds like a lot, but that’s $20 billion out of almost a trillion dollars that is spent on food in America every year,” he asserted.
Young identified the following as the primary contributors to price increases: energy prices, which have affected everything from transportation to packaging; weather-related production shortfalls, such as a multi-year drought in Australia; tight commodity stock levels worldwide; significant increases in demand, particularly from China and India and yes, biofuels markets, such as soy diesel and ethanol. Young also pointed to other contributing factors such as the weak dollar, limits on exports instituted by some countries and speculation in the commodity markets.

Energy costs is main culprit

With higher energy costs serving as the main culprit, or 44 percent of the reason for higher food costs, Young and Villwock said that consumers need look no further than their local supermarket for proof. Items that have no connection at all to corn or soybeans – grapes, for example – have also increased in price, Villwock noted.
Often a primary example of the increase in food costs is a box of corn flakes. Young said that before the increase in grocery costs, corn contributed 3 cents worth of the cost, now it’s still a marginal 7 cents.
“The box costs more than the corn. The packaging costs more than the corn. The printing costs more than the corn,” Young went on.
Young also explained that in one of the most popular types of chicken – skinless, boneless chicken breast – there is only 6.5 cents worth of corn in every pound – “if the price of chicken doubled today – that would still only be 12.5 cents worth of corn.”
According to Young, on average, 25 percent of the retail prices of a food product accounts for the ingredients to make that product, 20 percent accounts for energy costs in making the product, 40 percent for the labor to process, transport and package the product, and 15 percent for advertising, profits and other costs.
With the ethanol and agriculture industry often taking the blame for the increase in food costs, as a result of “the GMA seeding negative stories across the country,” grain and livestock producer Chris Mann, of Cloverdale also sought to defend his beloved industry.
“For me, as an Indiana farmer, this is an exciting time,” Mann said. “We are seeing the biggest investment in Putnam County’s history as a result of ethanol.”
Mann gladly pointed out that Putnam County is home to a new ethanol plant that boasted a $180 million dollar investment.
“Biofuels is really a win-win-win for agriculture and our economy,” said Villwock, who pointed to investments, taxes, spin-off jobs and economic development as the primary benefits of ethanol plants.
Additionally, he mentioned that ethanol has helped keep fuel prices from going even higher because it has replaced increasingly expensive petroleum. Numerous studies have estimated that without ethanol, fuel prices would be 40 to 45 cents higher, Young pointed out.
Even if sometimes controversial proposals such as drilling in the Arctic National Wildlife Refuge are considered, Mann said, renewable fuels are going to have to play a part in the nation’s energy in the future.
“We need to find a substitute for oil,” Villwock said, noting that most of the world’s imported oil comes from within 1,000 miles of Bagdad.
If not ethanol and soydiesel, “What is our alternative?” he added.

6/18/2008