Ethanol policies fuel food-price rise

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By Stephen Dinan

Federal ethanol-fuel policies forced consumers to pay an extra 0.5 percent to 0.8 percent in increased food prices in 2008, and the government itself could end up paying nearly $1 billion more this year for food stamps because of ethanol use, according to a new government report.

The report by the Congressional Budget Office helps answer questions raised by Congress last year as food prices shot up, and some lawmakers questioned the effects of government policies, such as the ethanol mandate.

“Producing ethanol for use in motor fuels increases the demand for corn, which ultimately raises the prices that consumers pay for a wide variety of foods at the grocery store, ranging from corn-syrup sweeteners found in soft drinks to meat, dairy and poultry products,” the CBO said.

Also, government-sponsored subsidies and mandates for ethanol to be mixed with gasoline are supposed to help foster U.S. energy independence and to cut down on greenhouse-gas emissions, but only have reduced greenhouse-gas emissions by less than one-third of 1 percent.

The federal government has mandated that a certain amount of renewable fuels be used to replace motor-vehicle fuel, and ethanol from corn is a chief candidate for the U.S. market.

But overall, food prices rose about 5 percent from April 2007 to April 2008, the period CBO evaluated, and increased ethanol use “accounted for about 10 percent to 15 percent” of that.

Taxpayers will be hit with the increased costs this year of between $600 million and $900 million for food stamps, as well as an undetermined amount for higher cost-of-living payments in Social Security and other programs. Those payments are based on the Consumer Price Index, which is higher because of increased food costs.

As for consumers, the most recent government report found per-capita food spending in cities was $2,207 in 2004, so the CBO report suggests each city-dweller paid up to $20 more last year on food because of ethanol.

CBO said ethanol use reduced greenhouse-gas emissions in the transportation sector by less than 1 percent. Transportation emissions account for about a third of all U.S. emissions.

But pushing for more ethanol could actually end up increasing global warming, depending on where corn is grown, the report said.

“If increases in the production of ethanol led to a large amount of forests or grassland being converted into new cropland, those changes in land use could more than offset any reduction in greenhouse-gas emissions,” CBO said.