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Corn-based ethanol production seen adding to U.S. food prices.

Corn-based ethanol as motor fuel added from 0.5 to 0.8 percentage point to U.S. food prices when they were climbing during 2008 at double the usual rate, according to a report by the Congressional Budget Office. CBO said the larger use of ethanol drove up feed prices for cattle, hogs and poultry and, in turn, resulted in higher retail prices for food.

CBO said the increased use of ethanol accounted for 10 percent to 15 percent of the rise in food prices in the year ending in April 2008, or 0.5 to 0.8 percentage point of the 5.1 percent increase in food prices that was registered. "Over the same period, certain other factors--for example, higher energy costs--had a greater effect on food prices than did the use of ethanol as a motor fuel," according to the reports.

Food prices rose by 5.5 percent during 2008, the highest annual increase since 1990 and double the rate seen earlier this decade, said USDA. It forecasts an increase of 3.5 percent this year. "Beyond the one-year period that ended in April 2008, food prices are likely to be higher than they would have been if the U.S. did not use ethanol as a motor fuel," said the CBO, adding that it is difficult to gauge by how much. U.S. gasoline usage was down by 4 percent last year because of ethanol, said CBO.

The report also said that emissions of greenhouse gases by the transportation sector were down by less than 1 percent, equal to 14 million tonnes of carbon dioxide, based on research saying ethanol has a 20 percent savings over gasoline in greenhouse gases.

"In the long run, the result in less clear," said CBO. If large amounts of forest and grassland is converted to cropland, greenhouse gas emissions overall could rise. But biofuels made from grasses, wood and crop residue "might reduce greenhouse gas emissions more substantially."

Federal mandates now in place require additional use of ethanol in the future, which the CBO report said would continue to put upward pressure on prices. In contrast, the report added, increases in the supply of corn from cultivating more cropland, increasing crop yields, or improving the technology for making ethanol from corn or other feed stocks (raw materials) would tend to lower food prices.

The rise in food prices attributable to increased production of ethanol will lead to higher federal spending for food assistance programs, the CBO said, estimating it $600 million to $900 million of the more than $5 billion increase in spending projected for Fiscal Year 2009 as a result of the rising price of food. The link to CBO report is:
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Publication:The Food & Fiber Letter
Date:Apr 20, 2009
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