Ethanol and Food Prices - A Preliminary Assessment

Richard K. Perrin, University of Nebraska

Document Type Article

Abstract

Food prices in the U.S. rose dramatically in 2006 and early 2007. Given the integration of them world markets for foodstuffs, prices increased around the world as well, leading to riots in a number of countries in early 2007. The popular press has tended to attribute these food price increases to demand for corn by the ethanol industry. But there are other factors that may have contributed to food price increases (see the schematic in Figure 1.) Grain prices are one determinant of food prices, but they constitute less than 5% of food costs in the U.S. (more elsewhere.) Rising energy prices have clearly increased both food processing and transportation costs. This preliminary assessment will consider the potential impact of these various components, with ethanol being only one such component.