Ethanol pushes price of food higher
The economics are simple: another use of corn, sugar, and other farmed food inputs to produce ethanol increases the demand, which pushes up the price. In the US the primary input for ethanol is corn, although in other countries like Brazil they use sugar cane. So now everything that involves corn in any way in its production is rising in price. This means that many staple food products will be more expensive this summer than we’ve seen in a while - milk, beef, chicken, etc. So while ethanol may be a renewable, domestic alternative to “foreign oil,” it essentially puts a tax on food - which hurts the lower classes the most because food represents a higher percentage of their budgets than higher-income families. It’s a trade off that should be considered when lobbying for ethanol use. I guess it should have been an obvious side effect of using a food product to fuel your car (in Brazil some drink ethanol straight from the pump).
One of the chief causes of food-price inflation is new demand for ethanol and biodiesel, which can be made from corn, palm oil, sugar and other crops. That demand has driven up the price of those commodities, leading to higher costs for producers of everything from beef to eggs to soft drinks. In some cases, producers are passing the costs along to consumers. Several years of global economic growth — led by China and India — is also raising food consumption, further fanning the inflationary pressures.
…The U.S., too, is seeing some stirrings, with food costs rising 3.1% in February from the year before — a rate one percentage point higher than in mid-2005. Economists say U.S. food prices are expected to rise faster than the general rate of inflation this year. Wholesale prices of meat, poultry and eggs have already increased.
If the trend continues, U.S. consumers are likely to see higher prices at the supermarket for everything from milk to cereal to soda pop, since corn is used to feed livestock and make high-fructose corn syrup, a key ingredient in many soft drinks. A spokesman for the National Chicken Council, a poultry-industry group, recently testified to a congressional subcommittee that Americans should expect higher chicken prices because of what the group described as “the ethanol crisis.”
From WSJ.com [subscription required]
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