Informa looks at corn-based ethanol and food prices

The ethanol industry's demand for corn has recently been blamed for increasing corn prices and therefore playing a key role in raising the cost of food on the supermarket shelves. In November 2007, Informa Economics released the report Analysis of Potential Causes of Consumer Food Price Inflation to answer the questions of (1) is the ethanol industry the cause for higher corn prices and (2) are those higher prices the primary cause of higher food prices.

Prepared for the Renewable Fuels Foundation (the education and outreach arm of the Renewable Fuels Association, an ethanol trade association), the report argues that higher corn prices are the result of not only increased demand from the ethanol industry, but also from low corn supplies and higher demands from export markets.

The authors then analyze the correlations between corn prices and livestock, poultry, egg, and milk prices. When examining the historical changes in the Consumer Price Index (and food subsets) over time in comparison to the changes in corn prices, the researchers did not find a statistically significant correlation. According to the report, only 4% of the change in food prices could be attributed to changes in corn prices.

The researchers hypothesize that there are a multitude of factors involving the increase of consumer food prices including significant increases in energy and transportation costs. According to Informa Chairman and Chief Executive Officer Bruce Scherr,

"The statistical analysis plainly details that energy-intensive activities such as processing, packaging and transporting, as well as the cost of labor, have a far greater impact on consumer food bills than the price of grain. It may be politically convenient to blame ethanol for rising food prices but it doesn’t make it factually accurate."