Wednesday, May 21, 2008

Study on Ethanol shows it increased corn price 40%

Wow, what a misleading headline: Yet Another Study Confirms Ethanol’s Minimal Effect On Retail Food Prices, but in fact it shows the direct influence ethanol has had on grain prices:

Ethanol's demand for corn is a factor, Perrin said, but it needs to be taken in perspective. Grain prices have roughly doubled in the last two years, Perrin said. His calculations found that ethanol is responsible for about 40 percent of that increase.

40% of a doubling is a 40% increase. Ethanol subsidies, on top of socking it to taxpayers, force us to pay more for grain. So the headline should have read: Study on Ethanol boondoggle shows it increased corn price 40%. And it should further warn us that it is just the start - the 2007 ramps up ethanol mandates considerably.

Then they say: "Doubled grain prices contributed about 3 percent to the increase in U.S. food prices; 40 percent of 3 percent comes to about 1.2 percent." .. This looks like a case of how to lie with statistics, I suppose. The retail prices have a lot of non-food related markup, in particular they have risen because the price of oil is adding to agriculture and transportation costs. Now if ethanol was really a winner, it would be lowering the oil prices to balance the higher food prices. Didn't happen. To say ethanol is not mainly responsible for *retail* prices is silly. It's like saying ethanol is okay because it didnt raise the price of movie tickets.

It is further doubtful the study properly is measuring the real impact from the spillover from higher corn demand and higher corn production displacing many other grain production and thereby increasing their prices as well. This is a global phenomenon, made worse by the fact that Europe has also gone 'whole hog' for bio-fuels.

So to conclude: 1. Ethanol adds to grain prices. 2. Ethanol costs taxpayers billions. 3. Ethanol does nothing to keep the price of oil low. So why oh why are we wasting money on ethanol?

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