Grain producers have incurred the wrath of the cowboys over high prices for corn. But what about the non-farm consumer, who is paying higher prices for food, that he or she believes, is the result of more money going into a farmer’s pocket? The tug of war for corn between the food and fuel industries has created an uneasy relationship between the producer and the consumer.

While the typical consumer is unaware that biofuels have eased tight fuel supplies and that they will be paying fewer taxes to support commodity prices, today’s burr under the saddle is a bigger tab at the grocery store. Ag economists Helen Jensen and Bruce Babcock at Iowa State’s Center for Agricultural and rural Development rhetorically ask if Biofuels Mean Inexpensive Food is a Thing of the Past?

For years the proponents of farm programs advocated subsidies to ensure that food was plentiful and inexpensive, since farmers could sell it for less than the cost of production. Without those subsidies, higher priced grain would lead to higher priced food. Currently, we have higher priced corn (ethanol demand driven), higher priced soybeans (acreage demand driven), and higher priced wheat (short supply and acreage demand driven.) Jensen and Babcock say that theory calls for higher subsides to expand production so food prices could be low. They say, “By the same logic, high commodity prices caused by subsidized biofuels should result in a reduction in the production of food and higher food prices.” The economists contend that food prices are largely determined by costs and profits after commodities leave the farm.

The US consumer spends relatively little of his disposable income on food, which was 20% after World War II to about 10% today. That would be even smaller were it not for the cost of food consumed away from home which is 50% of the total food bill. The inexpensive food in the US is attributed to the efficiency of the producers and food companies. But that growth is being impacted by the biofuel revolution.

The demand for corn for livestock feed, for food ingredients, and for biofuels has resulted in higher prices for all. However, Jensen and Babcock say the 2¢ worth of high fructose corn syrup in a $1 can of a soft drink can would be increased to only 4¢ if the price of corn doubles. The economists say their fellow researchers found that a 30% increase in the price of corn, along with relative increases in soybean and wheat prices would increase egg prices by 8%, poultry by 5%, pork by 5%, beef by 4%, and milk by 3%. Incorporating the higher costs of restaurant food, they report that a 30% increase in corn would raise average food prices by 1.1%.

That is not currently the situation in the grocery store. Milk prices are at a record high, and meat and egg prices are high, but not because of high costs of corn. Milk prices are a function of the international demand that has outstripped the supply. At the same time, the motorist is looking to agriculture for biofuels. While the typical consumer may see little change in the cost of food, the low income consumer who is on a budget and is limited to home cooked meals, will be impacted to a greater degree. As a result, federal money once destined for commodity support programs will be needed to provide more food stamps for the low resource consumer.

Summary:
The demand for biofuels has created an increased demand for corn, needed also by the livestock and the food industries. While the cost of corn plays a very small part in the overall cost of food, meat, egg, and dairy prices have risen causing many consumers to blame biofuels for higher food prices. Traditional economic theory will not support the claim, even though farm program payments were designed to keep food prices low. Today those payments will not be going to farmers, but instead to consumers in the form of more food stamps with higher purchasing values.