With the drought making headlines and corn prices moving higher, opponents of the Renewable Fuel Standard (RFS) have launched an all out attack to repeal the mandated use of corn for ethanol. In Washington last week, Virginia Congressman Bob Goodlatte introduced legislation to eliminate the RFS — his reason, the drought, “The reduced corn crop will hit American’s pocketbooks hard by driving up food prices.” He claims that government policy is only making the situation worse. Goodlatte, a long time opponent of renewable fuels, is afraid we are going to run out of corn. He called on the EPA to immediately suspend the use of corn for ethanol, “Given our reduced supply of corn, I feel the EPA administrator should reduce the RFS for this year and do it now.” He added the US should not be in a position to have to choose between fuel and food.
Bob Anderson, economist with the AFBF, says corn shortages and sharply higher food price will not occur because of the drought, “The drought is probably not going to have a lot to do with what you pay for cornflakes this fall. We use a very small percentage of the country’s field corn in products directly. In addition, most of the cost of those items, which tend to be very highly processed items, is in things like transportation and packaging and processing and the energy associated with that. Corn is actually a fairly small part.”
Anderson says one area where we will see some price fluctuation in meat prices, “Things like dairy products, pork, beef, chicken because that affects feed costs. A reduction in the grain crop affects the availability and the price of feed. And as we see cost go up for the livestock sector their normal reaction will be to slow their production down and somewhere down the road that will influence retail prices.” Anderson says there are many factors that influence food prices and farm level prices are only one component of what makes up what consumers pay, “The lags between production and actual retail prices realizations can be very, very long and a lot of things can happen to muddy the water there. But in general drought is a difficult circumstance to deal with and it will reduce production of some of these items.”
The National Corn Growers Association issued a statement reminding consumers that we still don’t know what the size of this year’s corn crop will be, so to make assumptions about the corn supply and what might happen is premature. Growth Energy CEO Tom Buis was especially critical of the effort to tie higher grain prices to the government’s mandate for increasing amounts of biofuels. Buis said farmers across the country are dealing with a severe drought while the livestock lobby is spreading misinformation and taking advantage of the crisis by playing on people’s fears during a time of economic turmoil. He called it nothing more than an orchestrated attempt to place blame on American ethanol producers for rising food prices. National Farmers Union President Roger Johnson points out that commodity prices were actually declining in the months prior to the drought. He says the main culprits in the current rise in commodity prices are the drought and high petroleum costs, not the RFS.