I have never been a big fan of the national push for ethanol as a viable alternative fuel. This push, which started a few years ago, continues today largely with the support of heavy subsidies for the industry. This opinion would likely be considered sacrilege in my part of the country, as many in this region have benefited through higher commodity prices driven by this new marketplace demand.

During the ethanol boom, food prices skyrocketed and many have pointed to the ethanol industry as the primary culprit. Many have argued that the increased demand for ethanol inputs like corn was largely to blame for the recent increase in food prices. Up until this point this was largely my view as well.

A recent study put out by the Congressional Budget Office serves to negate this wildly held view. The study estimates that ethanol was responsible for 10% to 15% of the increase in food prices from April 2007 through April 2008. This translates into 50 to 80 basis points of the over 500 point rise in food prices during this time period.

The study found that higher energy prices were the primary driver of food prices. As electricity and transportations costs rose, these costs were passed on down the food chain, so to speak, to consumers. The study found that these higher energy prices were responsible for approximately 36% of the food price increases. The report also highlighted that roughly one-quarter of all domestically grown corn (3 billion bushels) is used for ethanol production.

In typical fashion, both opponents and proponents of ethanol are using the report to support their view. The Des Moines Register recently quoted Bob Dinneen, president of the Renewable Fuels Association, as saying: "The impact on food prices of our nation's push to find renewable alternatives to imported oil is dwarfed by the widespread negative economic impacts of oil itself. While ethanol opponents may try to hold up this (budget office) report as proof of ethanol's impact on food prices, a close and honest review of the report reveals that many other factors, especially prices for oil and energy, have greater influence over what Americans pay at the grocery store than does ethanol production."

On the other side of the issue the Grocery Manufacturers Association, American Meat Institute, National Turkey Federation and National Council of Chain Restaurants were quoted as saying: “The budget office estimates once again remind us of the unintended negative consequences associated with our nation's current policies, which promote and mandate the conversion of massive amounts of corn and other food crops for biofuels production."

Based on these two opinions the issue is now as clear as mud. The CBO report, although not definitive, does at least offer some insight into how the numbers actual play out.

The CBO report can be read at: www.cbo.gov/ftpdocs/100xx/doc10057/04-08-Ethanol.pdf

-GDH