Energy Costs Make Rutabagas More Expensive

By April 9, 2008Energy

More prepared testimony from today’s House Small Business Committee hearing on the effects of high gas prices on small business, this time from a consultant for studies (works for) the renewable fuels industry. Critics of ethanol as fuel — and there are legitimate criticisms, to be sure — are making the case more and more on the basis of rising food prices. Corn is a staple, animal feed and is found in many food products, ethanol has increased the demand for and price of corn, therefore ethanol is to blame for higher food prices.

Yes, but that’s not the entire story. From John M. Urbanchuk, director at LECG LLC, a global expert services:

[Since] rising fuel prices increase operating costs for businesses at virtually every stage of production and distribution, high fuel prices eventually affect the prices of all consumer goods and services. Rising motor fuel prices have been a major contributor to the recent increases in inflation measured by the Consumer Price Index. The CPI, all Urban Consumers for all items has been increasing at a year-over-year rate of 4.2 percent over the last four months. During this same period the CPI for motor fuels increased 33.4 percent. The impact of fuel prices on other consumer goods is illustrated by their impact on food prices.

Many critics have blamed the recent increases in consumer food prices on rising grain prices due in part to increased demand for biofuels. While grain and other agricultural prices have
increased sharply over the past year, their impact on consumer food prices is overshadowed by
energy and energy prices. Energy plays a significant role in the production of raw agricultural
commodities, transportation and processing, and distribution of finished consumer food products. An analysis I conducted for the Renewable Fuels Association last year concluded that an increase in energy (fuel) prices has twice the impact on consumer food prices measured by the CPI as does the same percentage increase in corn prices.

So many of the current problems that plagued the U.S. economy keep going back to the failure to have a comprehensive national energy strategy that recognizes the need to increase domestic supplies.

P.S. For a much more dyspeptic view of biofuels, try Ron Bailey at Reason.

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