With oil prices currently around $95 a barrel, the cost of crude oil is about $2.25 a gallon. After it is refined, shipped, loaded, and delivered to a station, we pay $2.50 to $2.75 (plus around 50 cents in federal, state, and other taxes) for a gallon of their finished product.
Similarly, with corn at around six bucks a bushel, ethanol plants take about $2.25 in corn and, after it is refined, shipped, loaded, taxed and delivered to a station, it is also sold for around the same $2.50 a gallon.
Meanwhile, Big Food companies take the same $2.25 worth of corn and make it into 100 bucks worth of cornflakes, or several hundred dollars worth of candy or soft drinks. Then they have a little extra money so they can hire PR folks to blame ethanol and oil as the reason for high food prices.
In 2008 when the Grocery Manufacturers Association hired Glover Park to smear ethanol and blame the corn used (less than 3 percent of the world’s grain) in ethanol production, Big Food lamented the increased price of corn, said prices would go higher, and then raised their prices to prove they were right. The result? Record food company profits.
If I have ever said that Big Food is almost as bad as Big Oil, I take it back. They’re every bit as bad. Maybe worse.
It doesn’t take a lot of knowledge about markets and economics to understand that when government farm payments are at their highest, while those payments help farmers manage market volatility, they are also keeping Big Food companies’ costs artificially low. It is easy to see why Big Food would rather go back to the days when they paid two bucks for corn and you and I paid the rest of the bill with tax dollars.
What is hard to understand is how all of these ethanol detractors think that paying less for corn will encourage farmers to grow more of it. Ethanol production is causing more corn to be grown – more food is available because ethanol has created real markets for corn. As a bonus, ethanol adds to the fuel supply and helps moderate oil prices.
When oil prices go up, people carpool, take public transportation, ride a bike, walk, or stay home. When food prices go up, people don’t have options like that. If Big Food – with its shiny new mega-stores, elaborate packaging, and ultra-high prices on actual healthy food – is truly concerned about people being able to afford to eat, the solution is simple:
Quit charging so much.
Posted by: Ron Lamberty, Vice President / Market Development, American Coalition for Ethanol