Ag Secretary Says Focus Needs to be on Factors That Can Affect Food Prices

USDA joins conversation on biofuels relationship to food prices.

The debate of food versus fuel has been a hot topic that has been getting a lot of attention lately. USDA spoke about the situation with the media Monday, and Secretary of Agriculture Ed Schafer said they would make the case for food and fuel.

"We think the time has come for USDA to join in the public conversation about the relationship between food prices and biofuels," Schafer says. "We want to offer our perspective on what is happening in the marketplace, to share our data and the analysis of what is happening."

Schafer says USDA is concerned about the higher prices of food that is occurring at a time of increasing prices for gasoline, and that these two trends are very closely linked.

"Higher oil prices affect much more than just the cost of driving," Schafer says. "They are actually one of the major factors behind higher food costs. With all the recent focus on the impact that biofuels are having, this fundamental fact seems to be overlooked."

The price of oil has pushed through a series of price ceilings this year. It has reached more than $120 a barrel and there are indications it could go higher, as gasoline prices push toward $4 a gallon.

"Developing diversity in our portfolio of fuels is, if anything, an even more urgent matter than it has been in the past," Schafer says.  "It is one that remains essential to both our energy security and our national security, and that is what our biofuels program is all about."

For food products higher oil prices mean higher cost of transportation, processing, packaging and distribution. Those steps account for about 80 cents of every retail dollar spent for food in the United States.

The theory that has been widely publicized in recent weeks is that the growing demand for biofuels is behind the increase in food products, yet Schafer says the evidence does not support that theory.

"It's true that higher demand for corn for ethanol and soybeans for biodiesel has lead to higher prices for those crops," Schafer says. "But we do not have a one-on-one relationship between higher prices for those commodities and what consumers are paying for food at the retail level."

Corn is an ingredient in less than a third of everyday food items, and because processed foods are such a large part of the diet in the United States, higher costs for a particular ingredient typically only have a small impact on their retail food price. On the international level, the President's council of economic advisors estimates that only 3% of the more than 40% increase seen in world food prices this year is due to the increase demand in corn for ethanol.

USDA Chief Economist Joe Glauber presented facts and figures that supported that assessment and reinforced the fact that there are a large number of factors far more responsible for the rising cost of food than ethanol.

"What I'm going to encourage people to do, is to look at the factors at hand and figure out how we can develop good public policy to make a difference in what the factors are," Schafer says. "As Dr. Glauber pointed out, the change in the Renewable Fuel Standard or a change in the tariff or duty isn't going to affect food prices. We need to focus on things that will actually have an effect instead of a short term political solution."

TAGS: USDA
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