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June 10, 2008

Corn Used for Much More Than Food and Fuel

The next time you squeeze a curl of toothpaste onto your brush, consider this: The cost of corn could soon affect the price of your favorite minty-fresh goo.

"It's driving up the cost of producing toothpaste," said Bill Lapp, an agricultural economist based in Omaha, Neb., adding, "The effect of corn may not be direct, but it shows you how far its tentacles reach."

Corn is by far the country's most dominant crop, with an estimated harvest of more than 12 billion bushels this year. And when the price of corn goes up, as it has in the past two years, reaching a record high Monday, so does the price of many other products, even those seemingly unrelated to commodity grains.

Take toothpaste. One of its ingredients -- phosphate -- is also an ingredient in corn fertilizer. More corn requires more phosphate, sending the price up.

With food prices rising faster than they have in a generation, many point the finger at corn, and to federal mandates that call for more corn-based ethanol in the nation's fuel supply.

With higher demand comes higher prices. And with higher prices, more farmers last year were enticed to plant corn rather than other grains, driving up the price of those grains, too.

"Because of competition for acres, it impacts soybeans, wheat, rice, anything edible -- even fruits and vegetables, eventually," Lapp said. "The impact of corn prices rising reminds us that corn is truly the king of agricultural commodities."

But not everyone can agree on how much corn or the demand for ethanol affects the price of food. Many corn farmers and lawmakers say corn is being used as a scapegoat. They point to record fuel prices as the biggest factor in rising food costs.

"We're not saying that biofuels aren't having an impact," said Rick Tolman of the National Corn Growers Association. "It's just not the only thing."

In recent weeks, with corn prices climbing and economists predicting greater increases in food costs, the debate over ethanol's role has reached global proportions. Many wonder just how much land should be used to grow fuel and to what extent "farmed" fuel competes for grain acreage, driving up prices.

"Logically, there is a link between corn prices and food prices, but the magnitude is very difficult to disentangle with any kind of reliability," said Scott H. Irwin, an agricultural economist at the University of Illinois Urbana-Champaign. "Clearly they have an impact; everyone wants to know how much."

Last week, delegates from at least 140 countries, including the United States, met in Rome to address the global food crisis, which threatens an estimated 850 million people in developing countries with hunger.

One of the meeting's goals was to examine the role of biofuels, bringing fresh attention to America's corn belt.

Only days before the meeting convened, a report issued by the U.N. Food and Agriculture Organization questioned the benefits of biofuels and suggested that pro-biofuel policies are to blame for rising food prices.

For Midwestern farmers, that kind of blame strikes an especially unpleasant chord.

"I take it very personally," said Mike Geske, president of the Missouri Corn Growers Association and a farmer in Matthews, Mo. "When they blame corn, they're blaming farmers. We're all taking it very personally."

BIOFUELS BACKLASH

Last month, the Grocery Manufacturers Association, which represents food industry giants such as General Mills and Kraft Foods Inc., launched a campaign calling on Congress to revisit biofuels policy.

The 2007 Energy Independence and Security Act requires 36 billion gallons of biofuels to be added to the nation's fuel supply by 2022. This year, that mandate calls for 9 billion gallons, up from about 4.7 billion last year, which translates to about 30 percent of the nation's corn crop. By 2015, the mandate will require 15 billion gallons -- and an estimated 9 million more acres of corn.

"The foot on the accelerator here is the current ethanol situation," said Keith Collins, former head economist for the U.S. Department of Agriculture. Now retired, he does consulting work, including for Kraft. "There seems to be little prospect of backing off on that. ... We're looking at substantial increases in demand for corn, year after year, which is going to keep pressure on corn and other crops."

On the same day that the Grocery Manufacturers Association launched its campaign, U.S. Sen. Christopher "Kit" Bond, R-Mo., stood beside his fellow Midwestern corn state lawmakers, taking aim at what they view as the association's smear campaign against ethanol.

"According to the USDA, a box of cornflakes consists of less than a dime's worth of corn and is accountable for less than 5 percent of the ... price," Bond said. "... Today at Gerbes grocery in Columbia, Mo., a 24-ounce box of cornflakes costs $3.69, which is up more than a dollar. If the corn in the cornflakes increases a nickel, why did the box of cornflakes increase over a dollar, and where did the other 95 cents go?"

Other lawmakers are trying to get answers to those questions. U.S. Sen. Jeff Bingaman, D-N.M., sent a letter to the departments of energy and agriculture in May asking about the link between biofuels and food prices.

As of Monday, he had not gotten an answer.

Bond, and others in the pro-ethanol camp, blame rising food costs on $130-a-barrel oil prices, mostly, but also to weather conditions in other parts of the world, the weak dollar, and oil demand in India and China. They stress Department of Agriculture statistics that show 81 percent of food costs go to off-farm costs such as packaging and distribution, strongly tied to oil prices.

"General Mills and Kraft have gotten used to cheap commodities," said Tolman, of the National Corn Growers Assocation. "They're passing the blame onto biofuels."

IMPACT ON PRICES?

Ethanol producers and corn growers stress the need for renewable fuels, noting one Merrill Lynch analysis that says today's $4-a-gallon gas would cost 15 percent more without ethanol. They also say that the industry's investment in ethanol production facilities is laying the groundwork for future biofuels production from other materials.

"What we're doing is to help build the infrastructure," Geske said.

Meanwhile, both sides in the debate cite economists' figures that suit their positions.

A coalition of food and environmental groups calling for a review of the country's biofuels policy cites a U.N. study that puts ethanol's impact on food prices at 10 percent to 15 percent. Or they point to the International Food Policy Research Institute, which says biofuels account for up to 30 percent of food prices.

The ethanol camp points to recent Department of Agriculture numbers that put the figure between 2 percent and 3 percent.

"What you will not get, in my view, is consensus among economists on how big the impact is," Irwin said. "It is, in fact, extremely complex to try to tease out the data we have available."

Most economists can agree, however, that demand -- and prices -- will continue to rise. At the end of this year, corn supplies are expected to be at their second-lowest point in nearly five decades, and heavy rains could lower that amount.

Some farm economists say the only way to meet the demand is to increase yields, rather than to find more acres to plant on finite farmland.

For Creve Coeur-based biotech giant Monsanto, that's good news.

"We've been very open about the fact that increased productivity is the solution for growing needs," said Darren Wallis, a spokesman. "If you have more grain to work with, then many of these discussions are filtered out and changed."

In the meantime, food companies are passing along higher costs to consumers -- and there doesn't appear to be an end in sight.

The Department of Agriculture recently estimated that food costs will increase 5 percent this year. Some economists put the figure even higher.

Lapp believes food costs will rise 9 percent each year until 2012.

But, he cautions, "That's one man's opinion."