Maxx Chatsko, October 19 – Earlier this summer I learned how inelastic ethanol policies affect the refining industry and consumers when I spoke with Charles Drevna, president of the American Fuel and Petrochemical Manufacturers. Unfortunately, the fuel pump isn't the only way ethanol affects your family budget. In a recent interview with renowned agricultural economist Dr. Thomas Elam, president of FarmEcon LLC, I turned my attention to the food-vs.-fuel debate in an attempt to answer one burning question: “How much does ethanol production contribute to rising food costs?”
The following three graphs from Dr. Elam's report Food Costs Are Eating American Family Budgets provide a powerful backdrop for the food-vs.-fuel debate. All are based on real-world industry data from inherently unbiased sources such as the U.S. Department of Agriculture and the U.S. Department of Commerce. What will they uncover about the controversial topic of ethanol production?
The trend was our friend
In 1950, the average American spent approximately 26% of his or her disposable income on food. Think about that. For every $100 leftover after taxes, individuals had just $74 to spend on non-food expenditures. Luckily, advances in agricultural production, logistics and transportation, and food availability have steadily lowered the amount of money spent putting food on the table. Food expenditures as a percent of disposable income fell to 20% by the mid-1960's, zoomed lower than 16% in the early 1980's, and ducked under 12% for the first time in history in 2000.
That's quite the trend, except for one thing: It's reversing.