Ethanol may raise food cost

The increased use of ethanol could cost the government up to $900 million for food stamps and child nutrition programs, a congressional report says.

Higher use of the corn-based fuel additive accounted for about 10% to 15% of the rise in food prices from April 2007 to April 2008, according to the nonpartisan Congressional Budget Office. That translates into higher costs for food programs for the needy.

The CBO said other factors, such as skyrocketing energy costs, had an even greater effect than ethanol on food prices during that period.

Economists at the agency estimate that higher food prices will increase costs for food programs overall to about $5.3 billion in the current budget year.

Ethanol’s effect on future food prices is uncertain, the report says, because an increased supply of corn would have the potential to lower food prices.

Roughly one quarter of corn grown in the United States is used to produce ethanol, and overall consumption of ethanol in the country hit a record high last year, exceeding 9 billion gallons, according to the CBO. Nearly 3 billion bushels of corn were used to produce ethanol in the United States last year -- an increase of almost a billion bushels over 2007.

The demand for ethanol was one factor that increased corn prices, leading to higher animal feed and ingredient costs for farmers, ranchers and food manufacturers.

Some of that cost is eventually passed onto consumers, since corn is used in so many food products.

Several of those affected groups have banded together to oppose tax breaks and federal mandates for the fuel. They said Thursday that the report showed the unintended consequences of ethanol.

“As startling as these figures are, they do not even tell the story of the toll higher food prices have taken on working families, nor the impact higher feed prices have had on farmers in animal agriculture who have seen staggering losses and job cuts and liquidation of livestock herds,” the Grocery Manufacturers Assn., American Meat Institute, National Turkey Federation and National Council of Chain Restaurants said in a statement.

Supporters of ethanol disagreed, saying the report was good news.