By TIM THORNBERRY
Kentucky Correspondent LEXINGTON, Ky. — The debate over rising meat prices and the use of corn for ethanol goes on as summer prices rise and may go even higher according to some sources.
Whether those prices reach record highs depends on basic economics’ rules of supply and demand according to Lee Meyer, an Extension professor in the Department of Agricultural Economics at the University of Kentucky.
He said while increased ethanol production from corn certainly has the ability to contribute to increased meat prices, it isn’t the only reason.
“When we started using corn for ethanol and subsidizing that, we really boosted the demand for corn and so prices went up accordingly,” he said. “Now, parallel to that, retail food prices went up back in 2008 and a lot of people associated the two of those with each other. I don’t really think there was a strong association. Because they both happened at the same time, people took them as cause and effect, but I don’t think that was really true.”
Meyer added that since then however, those very high corn prices really hurt the profitability of the livestock industry.
“You can look at budgets and the cost of gain on cattle went from under 50 cents per pound of gain to as high as 90 cents for a while,” he said. “Feedlots were losing money, hog producers were in terrible shape and chicken producers were losing money, too because all those industries really depend on corn as a major feed ingredient.”
Ultimately production and consumption decreased said Meyer, down considerably per person from four years ago.
“With a lower supply, prices are starting to go up and that’s what we are going to see into the future over the next year, probably,” he said.
Meyer also said things like fuel cost and drought conditions contributed to the situation as well as other factors like the economy.
“A big chunk of the beef industry is driven by away-from-home food consumption. When people quit eating at nice restaurants and eating at home, that affects prices for beef, especially,” he said. “As the economy strengthens and people get more optimistic, my persecution is then people will go back to those away-from-home eating habits and that is going to increase meat prices as well.”
There are some in the meat industry however that feel the federal mandate on ethanol production has more to do with the price increases than not.
David Ray, vice-president of public affairs with the American Meat Institute (AMI) said the mandate has been a major reason meat prices are climbing.
“The government, in essence at the end of 2007, created a new domestic market for corn and corn prices responded almost immediately,” he said. “In 2008, which would be the first year of the corn-based ethanol mandate, corn prices quadrupled making it impossible for some livestock and poultry producers to make a profit. Since corn is the major input into the animals we eat, animal agriculture found itself in a real pinch.”
Ray added that in response to this increase, livestock herds and poultry flocks were reduced in numbers, which reduced the supply of meat for consumers.
He also pointed out that while there have been a number of other reasons, which helped contribute to the increase in meat prices, government mandates are issues elected officials can address.
“In animal agriculture, we are trying to raise the question of whether or not a government mandate to burn a large component of our feed as fuel is in the best interest of the nation and raises the question as to whether it is sustainable in the long-term because we do not believe it is,” Ray said. “In the long run, we want to get to a policy where we are not being forced to burn our food to fuel our cars.”
A little history
The issue of using food-based fuel stocks took center stage in 2005 with the implementation of the Renewable Fuel Standard (RFS) program, created under the Energy Policy Act.
According to information from the Environmental Protection Agency (EPA), the program established the “first renewable fuel volume mandate in the United States” requiring 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012.
Under the Energy Independence and Security Act (EISA) of 2007, the RFS program was expanded and “increased the volume of renewable fuel required to be blended into transportation fuel from nine billion gallons in 2008 to 36 billion gallons by 2022.”
Last February, the EPA released information concerning a rule with changes to the Renewable Fuel Standard program as required by the EISA of 2007. In that report, the agency addressed “agriculture sector and other related changes” stating, “In 2022, the increased use of renewable fuels is expected to expand the market for agricultural products such as corn and soybeans and open new markets for advanced biofuels. We estimate that the National Renewable Fuel Standard program (RFS2) would increase net farm income by $13 billion dollars – in 2022. We also expect corn exports to decrease by eight percent, and soybean exports to decrease by 14 percent. The rule is expected to increase the cost of food $10 per person in 2022.”
While most experts agree there are multiple reasons for meat price increases, the major causes vary depending on |
