January 10, 2013

Increased food costs due to US ethanol policy are eating American family budgets

A new study released yesterday demonstrates the dramatic change in U.S. food affordability trends since the Renewable Fuel Standard (RFS) came into being in 2005. Dr. Thomas Elam, president of FarmEcon, LCC, the study’s author, shows that compared to long term trends, in 2012 the average family of four saw about a $2,000 increase in food costs, meaning that for the first time since the 1970s, food is becoming less affordable. For the country’s food spending, the current dollar above-trend 2012 food bill was $162 billion. In perspective, Elam notes, the increase in food spending is about the same as annual consumer spending on vehicle repairs, college education or telecommunications. Given the outlook for sustained high major crop prices through mid-2013, we are likely to see another very large 2013 food bill increase, Elam predicts in the study. A major component of the current decline in food affordability is, like the 1970s, booming grain and soybean prices. Unlike the 1970s, it is not exports this time around; grain and soybean exports are actually declining. Rather, the primary cause is booming use of corn in fuel ethanol production in the face of declining corn production. Read More

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