WASHINGTON — Is your soft drink costing you more? Blame corn. Is your pork chop more expensive? Spending more money to bake? Blame corn.
The cob-cultured kernels are taking heat for much of the recent runup in prices on everyday goods, at least when food producers, grocery chains and restaurants are pointing fingers.
These businesses protest that the federal government’s mandate to make more ethanol — most of which comes from corn — has caused corn demand to spike, resulting in higher prices for the crop. And higher prices on corn mean higher prices on many items because it’s used in everything from cereal and snacks to sweeteners and feed for livestock.
Company officials at chicken processor Pilgrim’s Pride say the rising cost of corn has given them plenty to squawk about.
The company buys 324 million bushels of corn every year. With corn prices up about 135 percent over the past two years, the cost of feed — the company’s biggest input cost — has skyrocketed.
“We closed a plant (May 23) in North Carolina, and we have six distribution centers closing,” said Ray Atkinson, director of corporate communications for Pilgrim’s Pride, which has plants in Chattanooga and Dalton. “That’s 1,100 jobs that are being lost because of the government’s failed ethanol policy.”
The energy bill passed last year by Congress mandates the use of 9 billion gallons of ethanol this year, ramping up to 36 billion gallons by 2022, to reduce the country’s dependence on foreign oil and lower greenhouse gas emissions.
Corn prices have gone from about $2.50 a bushel two years ago to about $6 a bushel today.
As more farmers switch their fields to corn from other crops to cash in on the higher prices, the lower supply of other farm commodities has driven those prices up, as well, ethanol critics say. Food prices have risen 83 percent worldwide in the past three years, according to New York University’s Center on International Cooperation.
“Today, we use about 25 percent of our corn crop for ethanol. The mandates say, if the corn crop doesn’t get any bigger, we’d need over 50 percent, and that’s not right,” said Tyson Foods CEO Dick Bond in a recent speech to employees at a chicken processing plant in Shelbyville, Tenn.
However, ethanol defenders, which include producers and farm groups, say the fuel is being demonized, when several other factors contribute to rising food prices, including high oil prices, which raise the costs of producing and transporting food; a week dollar; commodities speculators; and growing demand for food in developing countries.
They point to a recent testimony by President Bush’s chief economic adviser, Edward Lazear, who said the contribution of ethanol to rising food prices is relatively minor, at 3 percent.
“I think their anger is misplaced,” said Brian Jennings, executive vice president of the American Coalition for Ethanol. “A few years ago, when oil prices were about $50 a barrel, (the food industry) was angry about how $50 oil was contributing to higher food prices. Now that it’s $120 to $130 a barrel, where’s their outrage?”
SUBSIDIES UNDER ATTACK
Rep. Nathan Deal, R-Ga., whose North Georgia district is in the heart of the broiler chicken industry, said he hears often from processors about the high prices of corn affecting their livelihoods. Now, he says the ethanol mandate was a bad idea.
“It has the obvious effect of giving preference to an energy use, instead of a food use,” he said.
Even lawmakers from corn-rich states have begun to question ethanol policies.
“I supported ethanol from the beginning,” Sen. Dick Durbin, D-Ill., said at a recent news conference. “The object of having homegrown fuel, in America, is a good goal. But we have to understand that it’s had an impact on food prices, and let’s be honest about it. Even in the Corn Belt, we’d better be honest about it.”
Mr. Atkinson, with Pilgrim’s Pride, said the company’s objection isn’t with alternative fuels, it’s with the subsidies and tariffs Congress has provided to protect the ethanol industry.
Gasoline blenders currently get a 51 cent-per-gallon tax credit to use ethanol, while imported ethanol is charged a 54 cent-per-gallon tariff.
“There are several things that impact grain prices: energy costs, global demand, weather and the ethanol policy,” Mr. Atkinson said. “There’s only one of those that the government can do anything about. The others you can’t control, but the one they can is exacerbating a bad situation.”
But Reid Detchon, executive director of the Energy Future Coalition, which supports all alternative energy forms, cited U.S. Department of Agriculture statistics that show the rising price of corn allowed the federal government to reduce its farm subsidies by about $6 billion last year, even as it paid out about $3.5 billion to $4 billion in ethanol tax credits.
“Just on a straight transaction to the U.S. Treasury, the taxpayer came out ahead on that one,” Mr. Detchon said.
The ethanol industry also says critics of its subsidies ignore the favorable trade conditions that oil companies have enjoyed, including tax breaks and incentives for drilling on publicly owned land.
Still, Pilgrim’s Pride has an ally in Sen. Bob Corker, R-Tenn., and others who would like to see ethanol trade protections eliminated.
“I realize that in the infant stages of creating new energy sources, there may be a need for incentives, but I hope we create policies that wean us off of those,” said Sen. Corker, a member of the Senate Energy Committee. “I hope we can figure out a market-based system that incentivizes people to move to alternative fuels, instead of picking winners and losers.”
Sens. Corker and Johnny Isakson, R-Ga., were among 24 Republican senators, including presidential nominee Sen. John McCain, R-Ariz., to sign a letter in May urging the Environmental Protection Agency to consider rolling back the ethanol mandate.
Last year’s energy bill gave the EPA the authority to waive the mandate or structure it differently in the case of “adverse unintended effects.”
ETHANOL VS. OIL
The ethanol industry maintains that it is vital to the country’s desire for energy security and independence, particularly as oil climbs toward $200 a barrel. They cite an analysis by Merrill Lynch that said biofuels help keep oil prices down by 15 percent, saving Americans $1.5 billion a day.
Most vehicles can run without modifications on a blend of 90 percent gas and 10 percent ethanol, and ethanol accounts for roughly 5 percent of the country’s fuel usage. Under the energy bill, that percentage will climb to about 22 percent by 2022.
Matt Hartwig, a spokesman with the Renewable Fuels Association, said increased ethanol production can help protect areas like Alaska’s North Slope from being opened up to oil drilling.
“If we are really going to make dents and begin the progress necessary to diversify our energy portfolio, you’ve got to allow the conditions that will allow the industry to grow and become a significant part of the fuel mix,” he said.
Mr. Jennings, with the American Coalition for Ethanol, said the industry continues to make improvements in efficiency that eventually will help stabilize the price of corn, including higher crop yields, along with investments in cellulosic ethanol, which is made from plant material not consumed as food.
“At $130 a barrel of oil, we’re spending over $1 billion a day importing oil,” he said. “The cost of that status quo is far more dangerous than the price we might have to pay to help support a corn-based and a cellulosic-based industry. I’m confident there will be enough corn to feed and fuel the world.”
