Colorado Corn Cultivating Opportunities

A recent study shows that the marketing bill -- the portion of final food costs that excludes grains or other raw materials -- is the most responsible for rising food prices as many of the activities included in the marketing bill are energy intensive. No single factor determines the price of food -- it is a complex set of factors. Corn prices, strengthened lately by growing ethanol demand, have no significant impact on consumer food prices.

Given the focus on the issue of rising food prices and the role that increasing ethanol production might play, a definitive look at the issue was needed. To that end, Informa Economics, Inc. -- a world leader in broad-based domestic and international agricultural and commodity/product market research, analysis, evaluation and consulting -- has analyzed the factors contributing to the rise in consumer food prices.

The Informa analysis, commissioned by Renewable Fuels Foundation, will go a long way toward silencing ethanol critics as many in the agriculture, livestock and food industries rely on Informa for statistical analysis as well. The following are highlights of the analysis.

Key Findings of the Report:

* The marketing bill has a higher correlation with the consumer price index (CPI) for food than does corn, largely due to rising energy and transportation costs.
* The analysis finds a “weak correlation” between corn prices and overall food prices. In fact, just FOUR PERCENT of the fluctuation in consumer food prices can be attributed to corn prices.
* The “farm value” of commodity raw materials used in foods accounts for 19% of total U.S. food costs, a proportion that has declined significantly from 37% in 1973. The remaining portion of total retail food costs is known as the marketing bill, which includes the costs of labor, packaging, transportation, energy, profits, advertising, depreciation, rent, interest, repairs, business taxes and other costs not attributable to basic agricultural commodities.
* There is no statistical evidence to suggest that high and/or rising corn prices are the causative reason behind high and rising retail meat, egg and milk product prices.
* The proportion of the average American’s disposable income spent on food has declined steadily over the last halfcentury, from 21% of disposable income in 1950 to below 10% in 2006.
* Surging world demand for both grains as well as finished food products such as beef and chicken, as well as a weak U.S. dollar, are also key components in the moderately higher price for food and play a larger role in determining that price the farm commodities like corn.
* No single factor is responsible for fluctuations in consumer food prices over time. That has also been true of the moderately higherthanaverage inflation during the first three quarters of 2007. There is actually a complex and interrelated set of factors that contribute to food prices.

Bottomline Takeaway:

* This report disproves the argument that increasing ethanol production is resulting in moderately higher prices for food. The numbers simply don’t support the argument that ethanol production is to blame.
* It is a complex set of factors that determine consumer food prices that cannot be easily explained by singling out one specific factor, like corn prices.
* The statistical analysis of consumer food prices over time, as well as during the moderately higher than average rise recently, clearly shows that corn prices have virtually no impact on consumer food prices.
* Responsibly increasing the domestic production of ethanol, which is what the current expansion of the RFS would do, will not impact consumer food prices.
* Conversely, failing to address our energy crisis and the consequences of rising oil prices will force consumer food prices higher, along with everything else that requires petroleum.