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Q&A: Trading Food For Fuel

Thu, 08/11/2011 - 5:04am
J. Patrick Boyle, president and CEO, American Meat Institute

Federally-subsidized ethanol has long been a contentious issue in the food industry, particularly in the meat and poultry industries which use corn-based feed. Food Manufacturing spoke with J. Patrick Boyle of the American Meat Institute to get an industry perspective of the issue.
 
Q: What percentage of U.S. corn is used for ethanol versus for feed and food?

A: In 2000, only 7 percent of corn grown in the U.S. was used to produce ethanol, while 62 percent was used for animal feed and 14 percent for food. 

The federal government in 2007 passed a law mandating increased production of ethanol, diverting a huge portion of the corn crop away from animal feed and human food and into fuel for American cars and trucks.

Today, about 40 percent of corn grown in the U.S. is burned in our gas tanks — four out of every ten rows — while 42 percent is used for animal feed and 11 percent is used for food. 

Eventually, more than half the U.S. corn supply could be diverted into our gas tanks. 

Q: How do federal subsidies for ethanol contribute to rising food prices?

A: Fuel blenders are required under this government mandate to combine a certain amount of eligible "biofuels" into the gasoline they sell. They rely almost exclusively on ethanol derived from corn.

This mandate ensures a market for ethanol, whether consumers want it or not. In addition, blenders receive a tax credit, at the expense of the American taxpayer, of 45 cents per gallon of ethanol they produce. This year the tax credit will cost taxpayers $6 billion.

Topping off the trifecta of government protection is a tariff on imported ethanol that shelters U.S. ethanol from global competition. As a result, corn supplies are at their lowest levels in 15 years, pushing prices to near record levels, even though we are coming off one of the largest corn crops in history.

The unintended effects of this policy continue to put pressure on farmers and ranchers who rely on corn as a major feed source for cattle, pigs, chickens and turkeys. Unable to bear the increased input costs due, in large part, to artificially high corn prices, farmers are reducing herds, shrinking the meat supply and increasing prices for meat processors and, ultimately, consumers.

In other words, Americans are paying twice for the production of corn ethanol: once in the form of a tax subsidy and then again in the grocery bill.

Q: What other factors are contributing to increased food prices overall?

A: Any time there is a dramatic change in the weather, like a drought or flooding, where major crops are grown, that could have an effect on supply and therefore food prices. 

Two other factors that could contribute to a rise in food prices are an increase in the price of oil and an increase in global demand for any particular food product or crop. 

But unlike the weather or what people in developing countries want to eat, federal mandates, subsidies and tariffs for corn-based ethanol are things we can control. 

Q: What impact do these increased corn prices have on the meat and poultry industries?

A: As mentioned above, when Congress mandated that ethanol be used in our gasoline supply in 2007, the action placed tremendous pressure on the corn supply and corn prices rose quickly — more than doubling in a matter of months.

Corn became so expensive that it was no longer profitable for many farmers and ranchers to continue feeding their livestock and poultry. Some reduced the number of animals they raised or stopped raising them altogether because it simply was not economical to purchase corn for feed.

Today, fewer animals are produced for food. For example, USDA estimates that today’s cattle herd is the smallest since 1958 despite the fact that the U.S. population has grown by 125 million people during the same time period. This translates into a smaller meat and poultry supply, and when the supply shrinks, the prices at the meat case rise.

Government data show that the consumer price index for meat and poultry has risen significantly over the last decade with a dramatic rise following the 2007 ethanol mandate that diverted corn into ethanol for fuel.

Q: What are meat and poultry operations currently doing to cope with rising prices?

A: Some companies have been forced to limit production and even lay off workers due to the high cost of corn. 

In terms of helping consumers cope with rising meat and poultry prices, we have a free brochure on our new website, www.CornForFoodNotFuel.com, titled “Stretching Your Meat Dollar” that offers tips about shopping, leveraging sales, buying and freezing family packs of meat, reinventing leftovers so they are more interesting to the family and using value cuts of beef and pork — cuts that offer a big protein return for the price. 

Q: How much of the increased corn costs are being passed on to consumers?

A: The Congressional Budget Office has estimated that 10-15 percent of the rise in food prices can be attributed to the production of corn-based ethanol. 

Q: What should be done to help lower food prices?

A: The first step is for Congress to eliminate the subsidies and protective tariffs that have been afforded to the corn ethanol industry for more than 30 years. Federal energy policies need to move beyond corn-based ethanol and look for the next generation of alternative fuels that don’t pit food, feed and fuel needs against each other.

Interview By Lindsey Coblentz, Associate Editor

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