Biofuels aren’t driving up grocery prices–Big Food is profiteering

(article “The True Story Behind Food Versus Fuel Debate” By Ron Miller, Managing Director and co-founder of Prisma Advisors, LLC, former CEO, Aventine Renewable Energy Holdings, Inc.)

“Hunger, despair for millions” reads the headline in a national newspaper looking to link high food prices with the growth of renewable fuels. Anti-ethanol factions oftentimes cite food costs in the ongoing food versus fuel debate but they rarely dig too deep into the data.

81 percent of food costs go to non-farmers

On average, a farmer’s financial share of the retail cost of food is about 19%, according to the USDA. The other 81% goes to the food industry in the form of labor, packaging, transportation, marketing and energy costs and corporate profits.

Since the Great Recession began three years ago, labor costs have barely nudged but packaging and transportation costs — both directly impacted by energy costs – have spiked up, thereby increasing grocery bills nationwide. The average cost of crude oil in 2009 was $53.48 per barrel and in recent months has exceeded double that figure.

Huge margins remain for food producers

Are high energy and energy-related costs really hurting food companies? A quick scan of annual reports indicates that food companies like Chicago-based Kraft Foods have simply passed on higher costs to consumers. Kraft’s annual report for last year indicates gross profit margin, the difference between what it sold products for and the cost to produce them, was 34.8%. This is nearly double what farmers received for grain before factoring in production costs.

Even with sizable margins, food companies are crying poor and pointing to ethanol in Washington and editorial board rooms as the villain in the rising cost of food. The food industry has gone to some lengths to suggest that the small amount of cost associated with buying grain is the majority of the reason for higher food prices.

Why would a profitable food company with a large margin from which to extract corporate profits be anti-ethanol, and not, say, anti-packaging or anti-shipping, where most of the cost increase can be attributed? It is because ethanol has removed the financial boondoggle from taxpayer-subsidized grain prices that food companies have enjoyed for decades.

(Full story at http://biofuelsdigest.com/bdigest/2011/06/07/the-true-story-behind-food-versus-fuel-debate/)

Our Take:
The key point is that only 19 cents of the food dollar goes to the farmer, and that’s before costs of production are subtracted. Meanwhile Big Food’s gross profits–costs except salary and taxes already deducted–are nearly double that percentage.

Biofuels provide something America needs desperately–alternatives to oil–and it has succeeded beyond anyone’s wildest expectations as an engine for rural economic activity.

Just look at the example of Minnesota. The state invested a little over $30 million dollars a year during a ten year period, and in return it has built an industry that generates an estimated $6 billion in economic activity every year. Through the worst of the Great Recession it kept a thousand people employed directly and thousands more in service industries like trucking, financial services, etc kept their positions thanks to ethanol.

People won’t stand for profiteering in Big Food forever. If these powerhouse companies like General Mills and Kraft want to maintain strength for the long term, quarterly profits can’t be the only value driving the company. Smoke and mirrors PR that hurts farmers–the food industry’s key suppliers–won’t help Big Food stay in business.

Minnesota needs biofuels, and it needs a healthy food processing sector–13 of Minnesota’s top Fortune 500 companies are connected to food and agriculture. Let’s stop the attacks and work together to create long-term strength in this essential element of Minnesota’s livelihood.

Here’s a proposal: you can knock ethanol, ag or food processing in Minnesota on days that you don’t eat or drive. Otherwise, you’re criticizing the industries that keep you alive and vital and get you where you need to go every day.

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