Ethanol Policy and Meat Prices: Unspinning the Truth

Saturday, June 25, 2011

The following was written by Geoff Cooper, Vice President of Research and Analysis for the Renewable Fuels Association. In addition to overseeing market analysis and policy research, he provides regulatory support and strategic planning for the association and its members. Geoff also manages RFA programs related to sustainability and ethanol co-products.

Opponents of biofuels are doing their best to spin the results of a new study released by the Geneva-based International Center for Trade and Sustainable Development (ICTSD). Anti-biofuel groups like ActonAid, Oxfam, and the Environmental Working Group selectively promoted certain findings from the study in a last-ditch effort to influence G20 talks in Paris focused on food price volatility. But anyone who took the time to actually read the ICTSD study in its entirety knows that the report’s main conclusions are at odds with the picture that is being painted by anti-biofuels crusaders.

In fact, the study strongly supports the argument that biofuels policy has had almost nothing to do with food price increases in recent years. The study found that “…US ethanol subsidies during this period (2005-2009) had little impact on consumer prices and quite modest impacts on crop prices.” It concluded that the most significant impact of U.S. ethanol policy on retail food prices was a two-cent-per-dozen (1 percent) increase in egg prices in just one of the last five years. Meanwhile, retail prices for beef, pork, and poultry meat were impacted by “much less than 1 percent.” (For graphic representation of these results, click here.)

The ICTSD study was authored by Iowa State University professor Bruce Babcock and it builds upon a recent CARD paper that we wrote about here. Professor Babcock ran a complex economic model to examine how U.S. ethanol policies influenced prices for agricultural commodities and food products from 2005-2009. For commodities, Babcock found that the impact of ethanol policy on corn prices was “modest.” The largest impact on corn prices occurred in the 2007 marketing year when prices would have been $0.30 per bushel (7.1 percent) lower than they actually were, according to the modeling results.

The impact on wheat, rice, and soybean prices “was even smaller,” Babcock wrote.

As for consumer food prices, the impacts of ethanol policy were negligible. The chart below comes from the study and shows actual prices for eggs, broilers, pork, and beef compared to what prices would have been had there been no ethanol policy in place.

Click on image to see larger.

For broilers, the modeling results show that prices wouldn’t have changed by even one penny/pound if we hadn’t had ethanol policies in place. For pork, prices would have been one penny/pound lower (three-tenths of 1 percent) in one year, but identical in the other four years. It’s the same for beef, with prices identical in four years and only one penny (two-tenths of 1 percent) lower in one year. The largest impact was for eggs, where prices would have been two pennies (1 percent) per dozen lower in one year if we hadn’t had ethanol policies in place.

Clearly, based on the study’s results, one can conclude that U.S. ethanol policies have not been a factor in retail food prices in the last five years and have been only a modest driver of commodity prices. In addition, any microscopic impact on food prices that might be attributable to ethanol policy would be overwhelmingly offset by the savings on gasoline prices that results from increased ethanol use.

Not surprisingly, the strategy of flaunting the ICTSD study’s results as evidence that biofuels policy is somehow contributing to food price increases has back-fired miserably for the anti-biofuels crowd. The G20 agriculture ministers wisely didn’t take their bait; they saw right through the bombastic press releases and pithy sound-bites.

It has been widely reported that the G20 group has agreed on an “action plan” that rightly focuses on boosting agricultural productivity, reining in excessive speculation in commodity markets, improving market transparency and information flow, and other activities that can make a real difference.

Much to the chagrin of the extremists at Oxfam and ActionAid, the G20 leaders wisely opted to avoid brash actions on biofuels policies. Instead, they plan to continue to study and monitor the impacts of biofuels on agricultural markets.

Read more about the food versus fuel issue:

The Food Industry's Propaganda Campaign Against Ethanol

BBC: Will Biofuel Leave the Poor Hungry?

Ethanol Policy and Meat Prices: Unspinning the Truth

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