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Farmers say don’t blame ethanol for food prices

Farmers and ethanol producers defended their good fortune Wednesday in the nation's capital, where more lawmakers are blaming a corn-for-fuel policy for soaring food prices.
/ Source: The Associated Press

Farmers and ethanol producers defended their good fortune Wednesday in the nation's capital, where more lawmakers are blaming a corn-for-fuel policy for soaring food prices.

Farmers and ethanol executives told reporters that the biofuel industry is not the culprit behind skyrocketing corn and wheat prices that have set off riots abroad and grocery sticker shock in America.

"While we do have some role in higher corn prices, we're closer to a Little Bo Peep than an ax murderer," said Rick Tolman, President of the National Corn Growers Association at the National Press Club.

But there is little agreement on just how much impact biofuels like ethanol have had on food prices.

The ethanol industry puts the cost increase at 4 percent, while the Department of Agriculture says the figure is closer to 20 percent. International aid groups, including the World Bank, say ethanol accounts for a much larger chunk of the price surge.

As Congress readies its remedy search, ethanol producers fear the instinct will be to slash government incentives that encourage farmers to grow corn for fuel, rather than food.

That fear has been confirmed to a degree this week, as two Republican lawmakers on Capitol Hill proposed curtailing ethanol subsidies.

The portion of total U.S. corn plantings used for ethanol is expected to increase to 22 percent this year, up from 17 percent last year, according to the Department of Agriculture.

Poor weather conditions and a falling dollar should share blame for rising prices, but the ethanol industry said the biggest driver has been increasing fuel costs.

"All the crises we're facing have one common denominator: the ever-tightening oil market," said Renewable Fuels Association President Bob Dinneen. "We cannot afford to jettison the promise of biofuels due to this manufactured hysteria over a fight between food versus fuel."

The association represents ethanol producers, including Archer Daniels Midland Co. and Pacific Ethanol Inc.

Dineen cited analysis that rising oil prices have had twice the impact on food prices as rising corn. It costs more money for farmers to fill their tractors and ship their harvests to grocers, and that has pushed up prices for consumers. He added that biofuels like ethanol have helped lower demand for oil, keeping prices 30 percent where they would be otherwise.

In December Congress passed an energy bill that mandates a fivefold increase in ethanol production by 2022 to decrease the nation's dependence on oil.

But, despite a vigorous defense by farmers and ethanol firms Wednesday, there were signs in both parties and both chambers that Washington's love affair with ethanol may have just been a fling.

Rep. Jeff Flake, R-Arizona, on Wednesday called for a repeal of government incentives designed to boost ethanol production, calling them "a classic case of the law of unintended consequences."

"Congress surely did not intend to raise food prices by incentivizing ethanol, but that's precisely what's happened," Flake said in a statement. Earlier in the week Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol production mandate at current levels.

Senate Democrats are expected to call for similar measures Thursday at a hearing on food prices before Congress' Joint Economic Committee.

Options under consideration include suspending the tariff on imported ethanol, which would allow U.S. firms to import Brazilian ethanol at much lower costs. Brazilian ethanol is made from sugar and costs about a third as much to produce as the corn-based version.

Analysts cautioned investors Wednesday about the fallout of such policy changes on ethanol producers.

"The political winds have been shifting against corn-based ethanol ... investors need to take this into account vis-a-vis valuation," wrote Deutsche Bank analyst Eric Katzman in a note on Archer Daniels Midland Co. He maintains a "hold" rating on the company.

Shares of Archer Daniels Midland fell $1.52, or 3.3 percent, Wednesday to close at $44.06.