As if a housing crisis, rising energy costs and a soft labor market weren't enough to cause economic anxiety for the average American, now consumers are feeling the pinch of rapidly escalating food costs. The United States has long prided itself in being the breadbasket of the world, and Americans have traditionally paid a smaller share of their income on food than citizens of other developed countries. But the days of cheap milk, bread, beef and poultry may well be over -- and Uncle Sam is partly to blame.
In 2007, the cost of a gallon of milk increased 26 percent; eggs went up 40 percent; and a loaf of white bread went from $1.05 to $1.28 from 2006 to 2008. Steep increases in the price of oil have contributed to these higher costs, but the federal government has played a pernicious role as well. By mandating that oil companies increase the amount of ethanol they blend with gasoline, the government has not only artificially increased the cost of corn, which is what most U.S. ethanol is made of, but has driven up the cost of other grains as well.
Inflated corn prices encourage farmers to divert more acreage to corn, which means they plant less soy and wheat, which, in turn, drives the prices of those commodities up as well. The aggregate price of wheat, corn, soy oil and soy meal in the U.S. will be $61.7 billion higher in the 2007/2008 crop year than it was in 2005/2006.
Corn prices affect a host of other food prices as well. If you've ever looked at the ingredient labels on everything from bologna to canned tomato soup, you'll see that corn syrup is a common ingredient of many processed foods. Corn is also a common grain used in feed for cattle, poultry and hogs. As a result, prices for meat and poultry are going up, but even with higher prices, some companies in the meat industry still can't make a profit, and many are being forced to cut jobs and close plants. I've seen this firsthand as a member of the board of directors of Pilgrim's Pride, the nation's largest chicken producer, where we have already had to shut down one plant and close six distribution centers to cope with record losses directly attributable to soaring feed costs.
But what is most galling about the impact of government mandated ethanol production is that it does little or nothing to solve our energy problems. Ethanol proponents argue that it is cleaner than petroleum -- which improves air quality -- and that it and other alternative fuels will reduce U.S. dependence on foreign oil. Both claims are dubious.
Corn-based ethanol is inefficient as a fuel for automobiles, reducing vehicle gas mileage by 20-30 percent in vehicles using E85, the highest ethanol content fuel. Fewer miles-per-gallon of gas essentially eliminates any savings achieved, even by mixing ethanol with gasoline in the lower 9 percent ethanol blends required in all U.S. gasoline today. And of course, it also takes energy to produce ethanol -- for farming and distilling the corn and transporting the final product to the pump -- and much of that energy will come from carbon-based fuels.
None of these arguments has stopped the aggressive ethanol lobby from getting its way with Congress, however, and pressure increases in presidential election years as Iowa farmers encourage candidates to pledge allegiance to ethanol during the Iowa caucuses.
If ethanol really were the miracle fuel its proponents claim, you'd think there would be huge profits in producing it in the free market. But that's not the case. Consumers not only pay for ethanol at the pump, they're paying taxes as well to subsidize ethanol production in the U.S. -- and they're paying a hidden tax to keep cheaper, foreign sugar cane ethanol from competing with the domestic corn-based product. Subsidies to gasoline blenders amount to about 51 cents per gallon, and the government imposes a 54-cent tariff on foreign ethanol so that it can't provide a cheaper alternative for U.S. consumers.
And matters will only get worse as government mandates higher bio-fuel content in U.S. gasoline from the current 9 percent to 15 percent by 2015. Ethanol won't solve the energy crisis, but it may well lead to a food crisis in the U.S. and elsewhere. The U.S. Agency for International Development reports that the cost of providing wheat, corn, cereal and other foodstuffs to poor nations has gone up 41 percent since October 2007, which will mean we can provide less assistance to starving people around the world. Federal policy is literally diverting food from the table to the gas tank -- and it's time we stopped it.
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