While greater US biofuel demand contributes to the rising price of soybean oil-based foods, increased availability of soybean meal drives down the cost of animal proteins, offsetting Consumer Price Index (CPI), a new study by Purdue University finds.
Whether purchasing a new car or shopping for food, consumers in the United States (US) are feeling the pinch of inflation. Grocery prices have increased by 21 percent (from January 2020 to August 2022), and retail fat and oil prices have increased by 30 percent.
Soybean oil is a key ingredient for frying, baking, margarine, cooking oils, and salad dressings. Pair that with soybean oil used for biofuel production, which has quadrupled over the past decade, and it’s no wonder soybean oil is a hot topic right now.
Soybeans provide food and fuel
But a new study only adds to mounting evidence that domestically grown soybeans are well suited for people looking to cook, fuel up or find other sustainable solutions.
The United Soybean Board (USB) partnered with Purdue University on a Food and Fuel study to evaluate whether the increased use of soybean oil in biofuels has contributed to the rising retail prices of food products for consumers.
The economic model we created links the farm supply of soybeans to retail demand for various food products. What we found, after assessing the impact of rising soybean oil demand on prices at the grocery store, was little change to the CPI, said Professor Jayson Lusk, food and agricultural economist at Purdue University.
Only one-fifth of the soybean is oil: the vast majority of the soybean is soybean meal is used as a high-quality protein in animal diets.
This expanded crush for oil to meet biofuel demand creates increased availability for soybean meal, driving down the price of animal protein products.
This partially offsets the growth of oil and bakery prices, leaving the overall “food at home” portion of the Consumer Price Index (CPI) essentially unchanged. This can be attributed to meat prices representing a larger share of the CPI than fats and oils.
While the increased demand for biofuels pushed up retail prices for oil between 0.16 percent and 4.41 percent across different categories, retail animal product prices for dairy, beef, pork, chicken, and eggs declined between -0.01 percent and -0.16 percent. Rising soybean oil prices lead to an increased supply of oil, which also leads to an increased supply of soybean meal, thereby bringing down meal prices and the prices of animal products that rely on soybean meal, explained Jayson Lusk.
According to the study “Food and Fuel: Modeling Food System-Wide Impacts of Increase in Demand for Soybean Oil“, a 20 percent increase in the quantity of soybean oil demand for use in biofuels generates the following price impact breakdown (all else equal):
- Soybean oil increased by 0.16 percent in retail price for frying and baking, 0.82 percent in retail margarine price, 4.41 percent in salad/cooking oil, and 0.16 percent in other oil-containing food items.
- Animal protein decreased by 0.16 percent in retail egg prices, 0.13 percent in retail chicken prices, 0.06 percent in retail pork prices, 0.02 percent in retail dairy prices, and 0.01 percent in retail beef prices.
- Additionally, farm-level soybean prices increased by 0.73 percent, farm revenue for soybean producers increased by 0.92 percent and overall crude soybean oil prices increased by 8.17 percent.
The United States Department of Agriculture’s (USDA) Economic Research Service estimates that for every US$1 consumer spends on food, only about US$0.14 is a result of the cost of raw farm commodities, implying US$0.86 is a result of other post-farm factors such as transportation, processing, packaging, and retail costs.
Research continues to support our industry philosophy that U.S. Soy has the unique ability to solve two existential challenges: food security and renewable energy. Further, this study shows the increase in biofuels has had a limited impact on inflation at the grocery store. It’s also important to keep in mind many factors contribute to rising food prices, such as energy and transportation costs, higher wage rates, and supply chain disruptions, not to mention drought in the Western U.S. and the Russia-Ukraine war, said Mac Marshall, VP of market intelligence at United Soybean Board (USB).