Earth Policy Institute says 30 percent of US corn will divert to biofuels in 2008; will push meat, dairy prices skyward

In Washington, the president of the Earth Policy Institute said that 30 percent of the US corn crop will be used for ethanol in 2008 and will lead to price increases for food prices. Lester Brown told the Reuters Global Agriculture and Biofuel Summit that grain prices are now tied to oil prices and that, as a result, prices will increase for meat and dairy products that are dependent on corn feed.

“The days of cheap food may be over,” Benjamin Senauer, co-director of the University of Minnesota’s Food Industry Center, said recently.  His remarks come as food prices rose in 2007 at double the typical inflation rate. Researchers are debating the individual impacts of root causes, such as crop failures, increased demand from biofuel producers, or an increase in meat consumption in China.

A recent study by the Bureau of Labor Statistics showed that the price increase for milk, cheese, meat, ice cream, eggs and malt beverages in April 2006 with April 2007 was 3.0 percent, vs a 25-year annual inflation rate of 3.0 percent.

A biannual IMF report on the world economy said that “The use of food as a source of fuel may have serious implications for the demand for food if the expansion of biofuels continues. One country’s policy to promote biofuels while protecting its farmers could increase another (likely poorer) country’s import bills for food and pose additional risks to inflation or growth.”

The report said that greater international cooperation on biofuel production was needed, and that eliminating barriers on biofuel imports in the US and the European Union would alleviate pressure on the cost of food.

Recently, the chief economist of CIBC World Markets, criticizing the US drive to increase ethanol production, said that “the only thing Bush’s renewable energy policy will fuel is inflation”.

Jeff Rubin linked expansion of ethanol to a 60 percent increase in corn prices, and said food inflation would top 5 percent in 2008 and approach 7 percent in 2009. He said that soaring corn prices passed directly into animal feed costs and tortillas, but are also causing increases in the costs of other grains as corn production replaces other types of production.

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