If corn ethanol really was to blame, why are grocery prices still so high?

The tables have turned in the blame game for high food prices. Corn ethanol distillers have just emerged from a summer-long media battle with the Grocery Manufacturers Association, having defended themselves against claims that their increasing t...

The tables have turned in the blame game for high food prices. Corn ethanol distillers have just emerged from a summer-long media battle with the Grocery Manufacturers Association, having defended themselves against claims that their increasing the demand for corn was the primary cause of higher grocery prices around the world. But now that corn prices have dropped to half of their previous highs in June, the distillers are loudly wondering why grocery prices have not come down.

Jeff Broin, chief executive of South Dakota-based POET, is challenging "Big Food" to drop prices.

"The lies the Big Food lobby has been spreading about clean, green biofuels have finally been exposed as an intellectually dishonest smear campaign," he says. "It's wrong and we're coming together to ask Big Food to give struggling Americans a break."

According to Broin, GMA has now been cornered by its own "food before fuel" campaign. He and others are calling for GMA to either admit its media blitz against corn-based ethanol and the Renewable Fuels Standard was wrong or lower their food prices. At the very least, Broin thinks consumers deserve an answer.

"We ask the Big Food industry to explain to the American people why food prices are still so high," he says.


What goes up . . .

Ethanol's demand for corn did, in fact, help to raise food prices around the world. It drove prices higher and attracted more farmers, edging wheat, soybeans and other commodities out of the fields, thereby driving up their demand and prices, too. Farmers began looking hard at corn on corn, while ranchers began looking for corn substitutes in their cattle feed.

That said, the high grain prices really accounted for only about 20 percent of the price increases in food. During this same time, the cost of oil also reached record highs, and most studies proved the theory that this, along with heavy increases in food demand from China and India and increased speculation in commodities markets, was where the lion's share of the increased cost of food production actually occurred.

Interestingly, while claiming to have been at the mercy of higher ethanol-driven grain prices, Big Food's profits actually spiked upward. Kraft Food's revenues and profits jumped 19 percent from the same period a year before, Sara Lee's net income jumped 15 percent, and Kellogg saw a 12 percent jump in profits and a 9.5 percent increase in sales.

And all the while, food prices rose 7.6 percent.

In Ag Secretary Ed Schafer's words: "They're trying to justify the increased costs and the increased profits that they're making at the expense of another industry. That just isn't appropriate."

But it is becoming a kind of commercial tradition. When market forces drive up costs, companies offset them by increasing prices to their customers. When those same forces ease off, however, companies tend to leave their prices higher and reap hefty profit increases, at the expense, again, of customers.

This is nothing new to farmers, who are used to watching fertilizer and other input costs remain artificially high after spikes in the commodities markets play themselves out.


"It seems like when stuff goes up -- whether it's gas or fertilizer or anything -- once it's up there, it's a lot harder to get it back down," says grain buyer Ken Arens of Rugby, N.D.

But now it's happening in the supermarkets. The cost of food has increased at twice the rate of inflation this past year and has continued to increase in the past four months while the cost of corn and other commodities, including petroleum, has fallen. And GMA is laying it at the feet of ethanol and agriculture.

Meanwhile, the grocers are waiting for a drop in prices, too, but can't get any solid information on when that may be.

"We want to pass on the savings as soon as they get to us, but I just don't know how fast manufacturers are going to move," says Doug Driscoll, director of operations for Hugo's eight grocery stores in eastern North Dakota and western Minnesota. "We have talked to Nash Finch, which is our primary supplier of groceries, and have asked them that same question. Nobody's been able to give me a very good answer."

Fortune before food

GMA is a century-old lobbying organization that represents more than 300 food, beverage and household goods companies. It is powerful, well-connected inside the Washington beltway and a veteran of many public perception campaigns.

It also was planning its media crusade against corn ethanol long before this summer's commodity prices spiked.

In a leaked March 4, 2007, document, GMA's vice president for federal affairs, Scott Faber, solicited public relations firms to submit proposals for a media and lobbying blitz against corn ethanol. The document sets goals to not only prevent further increases in mandates for corn ethanol, but to "freeze or roll back" the current ethanol mandate altogether and remove minimum requirements for ethanol blends in U.S. gas tanks.


To do this, the winning bidder first would have to "change perceptions about the benefits of bio-fuels." A tall order, but if this could be done, they then could work on federal and state political players. An effort would be made to "cultivate progressive Democrats, pro-business Democrats and Republicans and Democrats from nonfarm states," the document states. The idea was to "develop a global center-left coalition of environmental, hunger, food aid, poverty, development, senior, children, business, nutrition, farm consumer and labor groups."

Aside from paid advertisements, they would engage "trusted third party experts to document the impacts of fuel mandates" and hit media outlets with op-ed placements, letters to the editor, rapid response (presumably to pro-ethanol news) and "news and editorial board pitching."

According to a policy brief issued by Growth Energy, a pro-ethanol association, the winning bidder proposed to "obliterate whatever intellectual justification might still exist for corn-based ethanol among policy elites."

Summertime blues

All of this, of course, was orchestrated specifically to "change perceptions," to sway public opinion away from corn ethanol and the RFS. News organizations duly trotted out the GMA sound bites and environmentalists and food relief organizations echoed the lobbyists' battle cry, "Food before fuel."

These were quickly met with counterclaims by the ethanol industry decrying the price of oil as the primary culprit, and Americans watched a summer-full of point-counterpoint on the subject while their grocery bills escalated steadily upwards.

Where prices go from here is unknown. Some say farm commodities and oil will resurge as the economy rights itself. Others paint a bleaker picture. But most expect food prices to eventually adjust downward.

"I think it's like anything else," says Robert Staehnke, general manager of the Valley Grain elevator in Crookston, Minn. "It just takes time to filter down. Eventually food prices will drop."

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