Livestock, poultry and food companies have called for eliminating the Renewable Fuel Standard for nearly a decade based on the notion that ethanol-induced higher corn prices were the cause of rising food prices.
Still, a new study by the Renewable Fuels Association suggests there is little or no correlation between corn prices and the price of food at the grocery store.
Ethanol opponents have pointed to ethanol demand for corn as the reason for higher food prices, but food prices keep rising despite a recent and dramatic drop in corn prices in the past couple of years, RFA said in a new report Monday.
Bob Dinneen, president and chief executive officer of the RFA, said in a statement that ethanol critics have remained silent as corn prices have fallen.
“The food v. fuel folks screamed to high heaven when the price of corn rose during the drought and immediately blamed high corn prices and ethanol for food price increases,” Dinneen said. “However, these same critics remain suspiciously quiet now that corn prices have dropped, but retail food prices aren’t dropping along with them. The food v. fuel argument is just another misguided attack on biofuels and the Renewable Fuel Standard, which is reducing foreign oil dependence, lowering gas prices for consumers, and revitalizing rural America.”
The Grocery Manufacturers Association and the American Meat Institute did not immediately respond to DTN requests for comment.
While prices were rising for corn and other grains in 2008, 2010 and 2012, RFA said meat processors and grocery manufacturers claimed consumers would see higher retail food prices. “Cynically, they blamed the Renewable Fuel Standard and expansion of the ethanol industry for higher grain prices, while turning a blind eye to the dozens of other factors that drive agriculture commodity markets,” the report said.
In 2009, the American Meat Institute said food price inflation would rise by three times the normal rate as a result of the RFS, by an average of about 9% annually between 2008 and 2012. Actual food inflation rates were 5.5% in 2008, 1.8% in 2009, 0.8% in 2010, 3.7% in 2011 and 2.6% in 2012 — for an annual average of 2.88% — or in line with the long-term historical trend of 3%, according to the RFA.
The monthly average corn price was about $7.63 per bushel during the 2012 drought. The DTN Cash Index for corn showed an average national price just under $3.30 a bushel on Friday and has been trending downward all summer.
“So, why isn’t big food promising to pass these lower grain costs on to consumers in the form of lower food prices — just as they threatened to immediately pass along higher costs when corn prices were rising?” the RFA report said.
CONSUMER PRICE INDEX
Consumer price index data show “virtually no correlation” between monthly average corn prices and retail food price changes since 2007, RFA said. The group’s analysis cites comments made by economists who say the estimated 50% to 60% drop in the price of corn will not translate to lower food retail prices.
“According to Citibank’s Sterling Smith, ‘Corn prices may have come down 50% (from their highs), but that doesn’t mean a box of corn flakes will fall 50% in price. Much of the price of food comes from the processing and movement of food…’ University of Tennessee economist Aaron Smith agrees, saying, ‘You’re not going to see a major impact at the consumer level (from the drop in grain prices) at this time,'” RFA said in the report.
“Indeed, USDA reports that only 12 cents to 17 cents of every $1 spent on retail food pays for the farm ingredients/products. The other 83 cents to 88 cents pays for labor, packaging, transportation, and other supply chain costs.” As it has for years, the RFA maintains the price of oil is the primary driver of higher food prices.
FOOD PRICE EFFECTS
Since January 2011, the price of dairy products including milk and cheese have been “negatively correlated to corn prices, meaning retail milk and cheese prices have tended to move in the opposite direction of movements in corn prices,” the report said. Current milk prices are “actually lower than prices observed throughout much of 2007 and 2008.”
Since 2011, the price of milk has averaged $3.54 per gallon and ranged from $3.40 to $3.74. The report said cheese prices have been on the rise since late 2013, while the price of corn has fallen to four-year lows.
The prices for some poultry items including chicken breast “have been relatively flat over the past seven years,” RFA said. Retail chicken breast prices averaged $3.43 per pound in 2007 — which was just 1 cent less than the average of $3.44 per pound in 2014. Retail prices for chicken legs, frozen whole turkey and fresh whole chicken have “risen steadily and smoothly since 2007,” the RFA report said. “Wide swings in corn prices did not interrupt or affect the gradual trend toward higher prices for these items,” RFA said.
The RFA report said the retail price of pork products have “not shown any meaningful relationship to corn prices over the past seven years. It is well documented that the recent acceleration in pork and bacon prices has been driven by piglet casualties resulting from porcine epidemic diarrhea virus, or PED. These retail price increases have occurred at a time when corn prices have been plunging.”
Retail prices for beef steaks were “generally flat” from 2007 through 2009. “Prices increased gradually in 2010 and 2011, then leveled off in 2012 and 2013,” RFA said. “Slightly accelerated growth in beef steak prices in 2010 preceded the increase in corn prices.”
The recent increase in the price of retail beef steak and ground beef is “being primarily driven by the 2012 drought,” RFA said. “Herd sizes were significantly curtailed in 2012 in response to very poor pasture and hay conditions in the High Plains, Southwest and other cattle-producing regions.”
