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US food price inflation slowed during the “ethanol era”

A new study finds that US retail food prices were "not impacted in any demonstrable way by expansion of US grain ethanol production under the Renewable Fuel Standard (RFS) over the past decade." Current collision of falling food prices and record ethanol production should end the contrived “food vs. fuel” debate once and for all says RFA.

Turkey for Thanksgiving cheaper this year compared to last year despite record corn ethanol production.

Turkey for Thanksgiving cheaper this year compared to last year despite record corn ethanol production.

According to the US Department of Agriculture, overall grocery prices are roughly 2 percent lower than at this time last year, and prices specifically for poultry products — like turkey — are down 1.5 percent compared to last fall. Meanwhile, the amount of corn used for fuel ethanol is primed to set a new record in 2016, up roughly 3% from last year.

The Renewable Fuels Association (RFA), which released an independent analysis today on the impact of ethanol on food prices, says the current collision of falling food prices and record ethanol production should end the contrived “food vs. fuel” debate once and for all.

The new statistical analysis, conducted by Informa Economics IEG, retrospectively examined the effect of ethanol expansion on food prices, concluding that “…retail food prices were not impacted in any demonstrable way by expansion of US grain ethanol production under the Renewable Fuel Standard (RFS) over the past decade.” On the contrary, the study finds that food price inflation has actually slowed during the “ethanol era.”

The study also examines the impact of ethanol on corn prices, and in turn the impact of corn prices on retail food items. While the authors conclude that corn prices were positively impacted by ethanol expansion, higher corn prices did not necessarily translate into higher consumer food prices.

According to the report “statistical analysis shows that the link between corn prices and overall food prices has been weak”. Changes in food prices are primarily driven by the costs of “transforming farm products to retail grocery products, along with transportation and distribution at various levels of the supply chain. Instead the analysis shows that only 19 percent of consumer spending on food pays for the value of the farm commodities, with the remaining 81 percent are termed “post-farm gate activities”.

Other factors that drive farm commodity and retail food prices were examined, with Informa concluding that core inflationary pressures, weather events, exchange rates, and energy prices all impacted commodity and food prices over the past decade. From 2009 to 2014, the impact of crude oil prices on consumer food price inflation was nearly nine times greater than the impact of corn prices.

– The US ethanol industry is set to produce a record volume of high octane renewable fuel this year. At the same time, consumers are spending considerably less on food today than they did a year ago. Today’s lower food prices continue a trend of deceleration in food inflation rates that began nearly 10 years ago when the RFS2 was adopted. As the new Informa report clearly demonstrates, there is no discernible link between ethanol production and retail food prices — here in the US or globally. It’s time to put an end to the ridiculous ‘food vs. fuel’ myth that has been propagated for far too long by self-interested opponents of biofuels and the RFS, said Bob Dinneen, President and CEO RFA.

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