Purdue Experts Study Ethanol Effect On Corn Prices

WTHR NBC 13, Tom Walker
Published July 23, 2008

Washington - The need for fuel versus the need for food is a hot issue this summer and on Wednesday, Purdue University experts put themselves right in the middle of the debate. A new report says what you're paying for food is the result of higher prices farmers are getting for crops like corn. Part of that is because people are fueling up with more ethanol made from corn. But of the recent $4 increase in corn prices, the report says government subsidies to produce more ethanol are not the main factor. "We found that one dollar of that four dollars was the subsidy and three dollars was just because the price of oil went up and the market demanded more ethanol to substitute for gasoline," said Wally Tyner, Purdue University economist. The report says you can blame not only ethanol for higher food prices, but also the falling value of the dollar, making US crops more attractive overseas, and a growing demand for crop exports to countries that can't grow enough. At a briefing on the findings, some called them new reason to question government requirements for more ethanol production. "We need to revisit the mandate and the appropriate level of that mandate. and we need to consider an outright ban on using food in our fuels," said Michelle Perez, Environmental Working Group. Others argued that with ethanol helping lower gas prices, this is the worst time to cut production. "The policies that we have in place today to encourage this industry to get up and get going are having an effect on the price of corn, but it's a very limited effect on the price of corn," said Bob Young, Farm Bureau Federation. This report comes as the federal EPA is considering a request for a temporary 50% cut in new mandates for ethanol production because of concern they are helping drive up food costs. Legislation passed by Congress requires nine billion gallons of ethanol be used over the next year.