Food vs. fuel should be put out to pasture

Earlier this year, the price of a bushel of corn (along with the price of all other commodities) exploded. The price that consumers paid for food also increased drastically. Much of the blame was placed on the expansion of the biofuels industry even though most studies showed that biofuels had very little impact on the price of food.

Now that the price of corn has dropped by more than half over the past month, it has revealed that the drastic increase in corn prices was nothing more than a speculative bubble that popped along with all  other commodities. In fact, it's time to put the phrase "food vs. fuel" out to pasture because it just isn't supported by the facts anymore.

As a Reuters article stated: Heavy demand for corn from ethanol makers was seen as a key driver of corn futures to record highs in June, but since then the sharp decline of corn along with other commodities shows that belief was mistaken.

At the grand opening of POET's 26th ethanol production facility in Marion, Ohio last week, CEO Jeff Broin made the following comments on the issue:

In the past three months, as the ethanol industry has expanded, corn prices have been cut in half. But while corn prices continue to decline, food prices keep heading in the other direction. The rest of the world is finally coming to realize what you and I knew all along: ethanol does not deserve the blame for increased food prices.

In an excellent blog post, Biopact takes pride in the fact that they made the correct assessment all along. Let's hope that those who made the incorrect assessement listen to the experts next time and not those with an axe to grind against the renewable fuels industry.

Comments

[J M Whelan]

Your claim that recent 50% drop in corn futures disproves the food-fuel controversy only proves the point. Corn prices are now, and for the foreseeable future, tied to the price of oil.

[Nathan Schock]

JM,

Thanks for your comment, but I'm not quite sure I'm tracking you. The point I was making is that while the price of corn has gone down by more than 50 percent, the price of food has moved in the other direction. The reason corn dropped 50 percent is irrelevant. The GMA wanted us to believe that high corn prices were causing high food prices and the drop in corn prices disproves that assertion.

In fact, it's only become more clear since I posted this. The CPI data for November was just release and showed another increase in food prices despite the largest overall drop in the CPI in 76 years.

However, I'm glad to see you acknowledge the impact that oil has on corn prices but I would expand that to include all commodities. We have become so dependent on oil that it influences every aspect of our economy. In fact, $145 per barrel oil played a significant role in the current economic crisis we are currently facing. We have got to break our addiction to oil lest it cause another crash once we climb out of this hole.

Thanks again for your comment. I hope you stop back sometime and continue the debate.