Bio-fuel escalates food prices

The wholesale corn prices in the United States roughly doubled in 2006 which is already having an effect on food prices. The reason for the surge in price is the growing demand from refineries to turn corn into ethanol. The agricultural sector now produces 20% of corn for ethanol production. US oil refineries blend ethanol with conventional fuels for use in ordinary cars. There is speculation that the incentive for ethanol production in the US is to reduce to dependency on foreigner oil.

Although the rise in corn prices has been good for farmers, it has made it tougher for producers ethanol to turn a profit. The price of corn is usually $2 a bushel, but has recently risen to $4 per bushel. The incentive for fossil fuel to be mixed with ethanol was made stronger with the 2006 rise in oil prices. Now oil prices have fallen again, since peaking at more than $78 a barrel last summer, and consequently cut the demand for a lower priced alternative fuel.

The food industry has already been effected, and is likely to see more raising prices. Tortilla prices in Mexico, for example, have risen as much as 60%, hurting the low-income people who depend on it as their basic food. More-expensive corn could have a domino effect on everything from Coca-Cola sweetened with corn syrup to Big Macs from corn-fed cattle. If the US Government takes on carbon reducing legislation, Americans will likely increase the use bio-fuel from American or foreign sources.

Daniel Sumner, an agricultural economist at UC Davis stated, "The most important products (likely) to be affected are meats." Higher corn prices could "show up in pork chops as a few cents per pound. Consumers may not notice it, but I can tell you the hog farmer does." Farm animals such as pigs and cows produce a large quantity of methane that contributes to global warming. One cow can produce the same amount of greenhouse gases in 8 months as an SUV would produce by driving 1000 miles. The rise in price of corn and meat correlates with environmentalist supporting less meat consumption.

As many as 10 million additional corn acres could be needed in order for farmers to keep up with the new demands for corn for food, feed, exports, and renewable fuels. Much of the extra corn will be a in place of soybeans, but many in the industry are also expecting new crop technology to increase corn yields about 2.5 percent per year. If that much additional corn were to be planted, it would be the highest level since American farmers helped feed postwar Europe in 1946.

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