The role of ethanol production in exploding feed
prices is much smaller than what is often believed, reports the US Department of
In a report
by the department's Economic Research Service
(ERS), factors contributing to the recent increase in food and commodity prices
were considered. Many causes were highlighted for the recent rise in food and
Talking about the effect of the increase of ethanol production on the corn
prices, the USDA's chief economist Joe Glauber said: "I think there's no
question in looking at the overall effect on corn prices. I think it's fair to
say the increase in biofuel production has had some effect, but again, what I'd
consider a relatively small effect and one that in looking at it it's important
to take into account a lot of other things that are going on outside of the
Glauber mentioned other causes that he believes are more important for the
global increase in feed prices, emphasising global economic growth.
"In fact if you were to look at countries like India and China where the
GDP has been increasing 5 to 10% annually, that has expanded demand,
particularly demand for meat products, which has contributed to both a growth in
livestock exports in the case of this country and also demand for protein meals,
soybean meal, etc," he said, adding that this is expected to continue.
Glauber commented on global weather conditions and their effect on this
situation. "In particular, droughts that have affected Oceania; Australia is
suffering now or is just beginning to come out of a drought that really affected
the last two crops quite adversely. We also had problems in the Canadian crop
last year, problems in the Ukraine, and problems in the European Union, all of
which contributed to a very low wheat crop."
He also identified strong export restrictions on rice and wheat markets,
which were put in place by many countries, "to the extent that a lot less wheat
made it on to the world market than we had originally anticipated."
"The other major factor on food prices of course has been the energy costs,
and the impact that they've had on food marketing and transportation costs," he
continued. "Lastly, no question, biofuels also has been a very, very important
part of this picture. As I mentioned, in the US we've seen increases over the
last two or three years, and as we increase capacity and add more capacity to
the ethanol processing manufacturing sector, that we're going to see - again
we're calling for about a 33% increase in corn use in ethanol this year."
For the study to the influence of ethanol production on feed prices, the
USDA used data from Iowa State University and University of Missouri.
He closed off by saying that it is important to realise that when these
corn prices pass through to retail prices, there is a much smaller effect."
Glauber mentioned that estimates show that total global increase in corn-based
ethanol production accounts for only about 3% of the recent increase in global