Ethanol and Food Prices -- Mixed Messages

MDL is sending some mixed messages about ethanol's impact on food prices. On Monday's front page, staff writer Chuck Clement offers a largely one-sided report claiming that "higher energy prices have a greater overall effect on food prices than the price of corn." He cites a report released by the Law and Economics Consulting Group that quantifies energy prices' impact on food prices as twice that of corn prices.

We have posted previously on press to the contrary. The Madville Times takes recognizes that ethanol is a new and complicated issue and that the science surrounding its economic and environmental impacts is far from settled.

However, readers should note that the LECG study was funded by the Renewable Fuels Association, an ethanol advocacy group. This somewhat more balanced June 14 CNN report cites Lester Brown, president of the Earth Policy Institute (a group that doesn't stand to make money from ethanol), as citing the LECG report's failure to consider the possibility that rising corn prices will also cause price hikes for other grains. As more farmers plant corn, supply of wheat, rice, and other grains will tighten, leading to higher prices for those commodities as well.

Note also that LECG is also essentially a group of mercenary experts, academics who make big money crafting expert testimony for the highest bidder. LECG itself links to a reprint of a Wall Street Journal article describing the huge profits it makes from such consulting work [George Anders, "An Economist's Courtroom Bonanza," Wall Street Journal, 2007.03.19]. Of course, they couldnt make big money if they didn't bring good qualifications to the table. John Urbanchuk, one of several directors listed on the LECG's staff page, studied economics at Penn State and Temple and has held a number of impressive-sounding consulting positions. At the very least, he knows more about a wide range of economic topics than the Madville Times.

Urbanchuk's profit motive and competency notwithstanding, there are plenty of ethanol opponents looking to make a buck as well. The American Petroleum Institute criticizes the LECG report, saying "it understated the impact of higher corn prices and overstated the impact of gasoline costs." API member Art Wiese notes that adding ethanol "to gasoline increases transportation costs, and thus, food prices" [UPI, "Supporters Defend Ethanol," 2007.06.15].

MDL itself seems uncertain on the issue of ethanol and food prices. The very next day's edition runs a version of this AP story on rising pizza costs [Bruce Schreiner, "Pizza Makers Hit with Higher Cheese Costs Raise Prices for Pies," StarTribune.com, 2007.06.22]. The chain of causation: pizza makers raise prices to make up for higher cheese costs, which make up 35-40% of the food cost of a pizza. Cheese costs more because milk costs more (up over three bucks for a gallon jug of nature's goodness at our local store). Milk costs more in part because of increased global demand for US dairy products and in part because feed grain for dairy cattle costs more. Feed grain costs more because ethanol is driving up corn prices.

Now ethanol may be fine and dandy for corn producers and big-industry groups, but when it starts messing with the price of pizza, the official food and fuel of the Madville Times, get ready for a fight!

Seriously, these two MDL articles and the other press around ethanol demonstrate there's still a lot of research to be done on the impact of this liquid gold on all facets of our economy and environment.