Not since Mrs. O’Leary’s cow took the heat for burning down Chicago has a farm product been the target of so much finger-pointing.
It’s human nature to assess blame, and the simpler the better. So when the Windy City went ablaze in 1871, people didn’t want to have to think about poor building codes or antiquated firefighting equipment; the big picture issues were too complex, too troublesome to contemplate. It was far easier to just blame the bovine.
Ethanol is today’s version of that culpable cow. The argument goes like this: We’ve always used corn to make food and drink. Now we’re using it to make ethanol. Coincidentally, everything from corn flakes to tequila costs more. So it has to be ethanol’s fault. It’s a simple line of reasoning. It’s also simplistic.
Here’s why you’re paying a little more for food these days: Droughts in Ohio and Australia. Preference for exotic cuisine. A higher minimum wage. Demand for organics. Protectionism. Dining out instead of eating at home. Last Easter’s freeze. Advertising. Immigration policy. Affluence in formerly poor countries. Taxes and regulations. Terrorism. Explaining how these and thousands of other factors influence food prices would fill every page of this magazine. And yes, higher corn prices are also a factor. But if you feel the need to single out a culprit, consider $70 oil, not $3.50 corn.
Economists tell us that when the price of gasoline goes up by $1 per gallon, your $100 food bill goes up between 60 cents and 90 cents. When corn prices go up by $1 per bushel, $100 worth of food goes up 30 cents. So another buck a gallon squeezes your food budget two to three times more than an extra buck a bushel.
If you’d rather not do the math, read the history. Over the past 30 years annual food inflation has been between 2 percent and 3 percent. But in 1973 grocery bills went up nearly 15 percent. Remember what else happened in ’73? The oil embargo.
Ironically, oil is the biggest reason we have public policy to jump-start our ethanol industry. Unlike petroleum, ethanol is renewable; we grow corn every year. And it’s American; it isn’t subject to the whims of foreign governments that control supplies and costs. To be fair, oil shouldn’t be a scapegoat any more than ethanol. But the point is this: Of all the reasons for moderately higher food prices, the ethanol influence is minor.
It would be nice to return to the good old days – like last year – when everyone had ethanol euphoria. There wasn’t a farmer, consumer, politician or pundit who didn’t shower their love on this next big thing. Looking back, that over-blown enthusiasm was probably a bit exaggerated, but no more so than today’s over-hyped anxiety. Here’s my prediction: Farmers, consumers and the markets that connect them will adjust. Corn producers and corn users will again live in peace, love and harmony. We’ll find that corn really can supply us with both affordable food and affordable energy. And today’s inflaming “ethanol is evil” rhetoric will be remembered as nothing more than a false alarm.