Colorado Corn

By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- A study released last week by a Washington, D.C.-based food interest group counters arguments made by segments of the food industry that say ethanol-induced increases in corn prices are leading to higher food costs for consumers.

"Retail Realities: Corn Prices Do Not Drive Grocery Inflation," published by Food and Water Watch said consumers face higher prices at the grocery store, "but there is little evidence that this grocery inflation can be blamed primarily on the cost of corn" derived from increased demand for ethanol.

As demand for corn to make ethanol has been on the increase in recent years, the livestock industry and ethanol opponents routinely have blamed ethanol for an increase in food prices. Numerous media accounts in recent months point to ethanol as the reason for higher prices on everything from meat to tortillas. And some industry experts say the consumer food issue could become a factor in future federal biofuels legislation.

Food and Water Watch, which, according to its website, is committed to stopping "corporate control of our food and water," found that meat and milk prices have been "unresponsive to significant price swings in the cost of corn."

Its latest study said there is "scant evidence that the price of corn alone is primarily responsible for driving up the cost of food at the supermarket."

The study accuses food companies of "capitalizing" on consumer fears that the "cost of eating is rapidly outpacing the means of paying for food."

A "small number of dominant meat and food processing companies has been benefiting from artificially low-priced corn and other commodities for the majority of the past decade," the study said.

Now that crop prices have rebounded slightly, the study said "these companies are raising their prices and driving up grocery costs for consumers, although consumers never received lower prices when commodity prices were at record lows."

Though the price of corn has increased and the price of groceries has risen, the study said higher corn prices don't necessarily cause higher food prices. In fact, in the past three decades meat and milk prices have been relatively non-responsive to changes in corn prices.

Despite that, the study found some of the nation's largest livestock processing companies increased their prices in the summer of 2007, primarily blaming the increased price of feed corn.

One example cited by the study was between November 1994 and July 1996. The study said the farmgate price of corn -- or the price of the product available at the farm -- more than doubled because corn acreage and yield fell between 1995 and 1996.

However, the study said the price of ground beef, pork chops and whole chicken "rose moderately or declined."

"The farmgate price of corn rose from $1.99 to $4.43 during this period," the study said, or nearly a 123-percent increase -- larger than the recent farmgate corn price increase.

The study found that during that same period, the price of ground beef declined slightly by about 1.3 percent from $1.83 to $1.80 per pound and the price of pork chops and whole chicken rose by about 7 percent.

"During this period, the farmgate price of corn rose more than 17 times faster than the price of pork or chicken," the study said.

The 1994 through 1996 period is "especially relevant," the study said, because it mirrors the current corn-pricing environment and the political timing for farm legislation.

Rising prices in the mid-1990s were used to justify the elimination of farm safety nets in the 1996 Farm Bill, the study said.

"After the 1996 farm bill went into effect, corn production soared, prices collapsed and billions of dollars in emergency payments were required to stabilize hundreds of thousands of farm families," the study said. "The current corn price environment is also being touted by some editorial pages and members of Congress as an opportunity to eliminate or significantly reduce farm commodity programs. Although the current farm policies have many shortcomings, elimination of the current policies without an adequate farm safety net could put farmers in jeopardy just as they were in the years following the 1996 farm bill."

The study cited other examples of how corn prices and food prices don't jive, including one from August 2000 to April 2004.

At that time, the study said, the corn price rose three times faster than the price of ground beef; pork chop prices fell and there was a modest increase in milk and chicken prices.

"Until the summer of 2007," the study said, "meat packers and food processors did not complain about the price of corn because commodity prices had been in a long-term slump."

The study said meat-processing companies including Tyson Foods, Smithfield Foods and Pilgrim's Pride have responded to recent higher corn prices by "either raising their retail prices or maintaining the possibility that prices could rise in the future."

Smithfield Foods, the nation's largest pork producer, raised prices by 5.5 cents per pound to cover the market corn price of $4 a bushel, the study found.

Hormel reported the second quarter that it was "not able to pass on higher grain costs through pricing" at its turkey operations, according to the study.

"Hormel reported to investors that the price of turkeys needed to rise by 4 to 5 percent," the study said, "to recoup the rising corn feed costs in the summer of 2007 on top of the second quarter 2-percent price increase."

Todd Neeley can be reached at Todd [dot] Neeley [at] dtn [dot] com.

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