Energy and protein demand set food prices higher

(a response to coverage on Minnesota Public Radio by Mark Steil: “USDA: Food prices to spike 4 pct”)

Worthington, Minn. — Food prices are expected to rise as much as 4 percent this year, according to the U.S. Department of Agriculture. Meat prices will show some of the biggest gains.

The USDA’s monthly forecast has a 1 percent increase over the January outlook. That would cost a family of four an extra $40 on their monthly food bill.

The overall meat sector could see a 5 percent increase in prices, with pork leading the way. Pork prices could jump as much as 6.5 percent this year. The forecast says the price of dairy products could increase 5.5 percent. Beef, cereals and bakery goods could end the year with a 4.5 percent rise….

Former President Bill Clinton raised another issue in the food price debate Thursday: ethanol production. The U.S. ethanol industry uses more than a third of the nation’s corn crop to make the fuel.

Speaking at a U.S. Department of Agriculture meeting in Washington, Clinton said making ethanol is a good thing but he said making too much of the product could short the rest of the world of food, and cause food riots.

Speaking at the same meeting though, USDA Secretary Tom Vilsack said there’s plenty of corn for both food and fuel.

“We’ve seen extraordinary increases in productivity in the last 30 to 40 years,” says Vilsack. “In talking to leaders of seed companies they are confident that corn can perhaps increase by as much as 100 bushels to an acre over time.”

That would be a 60 percent gain over current yields. Vilsack also said the U.S. and other wealthy nations should work together to alleviate food problems in other parts of the world.

Our Take:
No matter what you think of his politics, Clinton, it must be admitted, is among the most brilliant men ever to occupy the Oval Office–his broad understanding of everything is hard to understate. Which makes his statement at the USDA gathering all the more disappointing.

He of all policy wonks should be able to discern the basic fact that there is enough grain for everyone, that the world estimates all show a positive ending supply, which is several multiples of the amount of grain used in US biofuels (expected to top out at three percent of world grain production).

And a big part of the reason that the grain supply will not even come close to zeroing out is that ethanol producers do not, by a long shot, use up the food value of the corn they consume–they take away the starch for production of fuel grade alcohol, and the protein and oils that are left are sold into the animal feed market–where the raw corn was going in the first place. This ethanol co-product, called Distillers Grains, is demonstrated to reduce acidosis in cattle, and to add weight at a ratio of 1.2 times that of the same volume of raw corn–it is like an Atkins diet superfood for livestock animals.

Perhaps the livestock producers will not be so loudly critical of ethanol this time around, because their prices are shooting up. Thanks to world economic growth, the demand for protein in Asia is surging again.

If analysts and activists are searching for a reason that third world countries are seething over food prices, the three percent of grain used in biofuels doesn’t come close. Last time around, even the UN and the World Bank admitted that biofuels played a small, secondary role in the run up of commodity prices.

While the Middle East, economically, has devolved into medieval times, China and India have created a skyrocketing middle class and these folks want protein. And their jobs that bring the wealth that allows this increasing standard of living, requires vast amounts of energy. According to a report by the World Bank, it is oil that sets the floor for all commodities. Energy is involved in every aspect of the production of food, from planting seeds and fertilizing fields to placing foods in packages and transporting them to stores. (“Placing the 2006/08 Commodity Price Boom into Perspective” by John Baffes and Tassos Haniotis. The World Bank Development Prospects Group. July 2010).

The worst thing for food prices would be eliminating biofuels and making all commodity markets even more sensitive to the supply of oil.

US farmers’ participation in the energy market has been the single most effective way for them to keep the cost of producing crops in line with what the market offers farmers as a selling price.  The key to sustainable farm economics is keeping supply and demand relatively close. What the developing world really needs is a program of sustained help in setting up their own strong, dependable agricultural production, including especially palm oil for biodiesel, because this will be the foundation for wealth that has a built in hedge against energy market fluctuations. And that will allow them to build an economy where people are not walking the razor’s edge of subsistence.

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