Fact Checking Big Ethanol, again.

August 14, 2013

Once again grasping at straws to convince consumers that ethanol isn’t increasing food prices, the ethanol lobby is trying to name oil companies as the culprit for rising costs at the supermarket and in restaurants.

Beyond the fundamental risk of tying our two most precious commodities—corn and oil—to each other, inextricably linking food and fuel, the Renewable Fuel Standard requires that 40 percent of America’s corn crop is devoted to fuel production and incentivizes farmers to grow corn instead of other food crops. It is simply indefensible to claim that the ethanol mandates in the Renewable Fuel Standard are not impacting food prices.

Economist Mark Perry, of AEI, takes a more in depth look at the prices of food, fuel and corn and finds that corn prices, not oil prices are impacting the cost of food, and have been since the policy was implemented.

Perry scrutinizes the claim that a “near perfect correlation” exists by pointing out a number of flaws in their analysis:

  • The ethanol lobby compares the CRB commodity futures index, which includes all kinds of commodities, not just food. Of those commodities included, crude oil itself is not only included, but also holds the highest weight.
  • The ethanol lobby provides no actual correlation figure (which ranges from -1 to 1) between oil prices and the aforementioned arbitrary commodity index, so there is no proof that it is “near perfect” or nearer to perfect than that of corn to food prices.
  • The timespan analyzed is completely incompatible with the timespan in which ethanol mandates have been in effect.

Perry then compares each oil and corn to the price of food, measured by the Consumer Price Index for Food, a more accurate representation of food prices alone.

According to this analysis, “During the period when the RFS has actually been in effect (2006 to present), the statistical relationship between corn and food prices (correlation = 0.828) has been much stronger than the statistical relationship between oil and food prices (0.441).”

Be sure to visit Mark’s blog for more on this issue.