Food price spike: Is ethanol to blame?

By David Goldman, CNNMoney.com staff writer
Last Updated: June 27, 2008: 7:46 AM EDT

A devastated corn crop is likely to exacerbate costs at the grocer. Some people are pointing a finger at the ethanol production laws.

Living in a dairy farming community and having owned a dairy farm in the past, I pay attention to the price of milk and feed that is used to produce the milk. Although feed prices have come down somewhat in the last six months, in the year before, beginning in 2008, prices spiked like crazy and it became a hardship to purchase cattle feed.

One of the reasons for the high feed costs is that the price of corn - a staple ingredient in a variety of foods from cereals to cola and the main ingredient in animal feed -was selling above $7.50 a bushel, about 119% above the price from 2007.

In 2008, the rising price of corn fueled a movement to reduce the amount of corn ethanol that was added to American gasoline.

Ethanol's primary component is corn, so demand for the crop has soared since the ethanol standard was enacted in 2005 and increased with the Energy Independence and Security Act of 2007. The government passed the legislation in an effort to support the U.S. farm and ethanol industry, to promote cleaner-burning fuels and to reduce the nation's dependence on foreign oil. The backfire of the legislation, was the high price of corn as it became more valuable for fuel than food. Many farmers are barely hanging on as they try to cope with the high feed costs.

To read the entire article, go to http://money.cnn.com/2008/06/27/news/economy/ethanol_food_prices/index.htm

posted by Shelley H