In 2008, the Grocery Manufacturers Association (GMA) – representing the world’s largest grocery makers – launched a smear campaign against the ethanol industry in an attempt to blame the rising cost of food on American ethanol producers.

Since then, countless academic, economic and government studies have disproven the food vs. fuel myth, concluding that Wall Street speculators, high oil prices and the high costs of manufacturing, packaging and transporting all have far more impact than ethanol on the grocery prices that everyday Americans pay.

Despite the facts, proven over and over again, that there is no substantial link between ethanol production and grocery prices, there are those who are still actively trying to stoke illegitimate fears that demand for corn ethanol will somehow drive up food prices.

Even the World Bank — who published a research paper several years ago claiming biofuels were to blame for rising food prices — reversed its position recently with a new study entitled "Placing the 2006/08 Commodity Price Boom into Perspective." The study's authors found that "the effect of biofuels on food prices has not been as large as originally thought, but that the use of commodities by financial investors (the so-called 'financialization of commodities') may have been partly responsible for the 2007/08 spike." Read this report — and others like it — in our Research & Reports center. 

Issue Brief

Speculators are driving up prices – not ethanol. Data collected by the U.S. Commodity Futures Trading Commission shows that hedge-fund managers and other large speculators increased their net-long positions to a record in Chicago corn futures in the week ending September 7.

USDA’s quarterly grain stock report, issued on Sept. 30, found that supplies of corn held in commercial storage and on farms as of Sept. 1 rose above 1.7 billion bushels -- up from a year ago and well above many analysts' expectations.

International Food Policy Research Institute economists conducted several statistical tests providing support that speculative activity affected market prices.

Even the World Bank – which early on took the position that biofuels were to blame for high crop prices – reversed itself after conducting a more thorough study and is arguing that the effect of biofuels on food prices has not been as large as originally thought. The same World Bank studies argued that investors speculating in commodities were responsible for the last food spikes.

A recent Bloomberg report quoted Joel Karlin, the commodity sales coordinator for Western Milling, LLC, as stating that speculative buying of corn increased September 19 after Goldman Sachs Group, Inc., forecast further tightening of supply as demand increased for animal feed and ethanol.

In a June 2010 story in Harpers’ Magazine, it was reported that Goldman Sachs created a commodity index fund where fund managers would hold long positions on a range of commodity futures – and then transfer their long position to the next long position, thereby creating speculative bubbles.

Corn is only a fraction of overall food and grain costs. For every one dollar spent in a grocery store, approximately 3 cents goes to corn-related costs at the farm-- admitted as much when General Mills CFO, Don Mulligan, was quoted in the St. Paul Pioneer Press saying that grain was only 5 to 10 percent of the company’s total costs.

USDA found that biofuels like ethanol were only responsible for .2 percent of the 4.8 percent increase in grocery bills during the first four months of 2008.

Food processing is energy intensive and packaging frequently uses petroleum-based raw materials. Transporting food around the world also requires large amounts of oil. The cost of oil has much more to do with the cost of food to consumers than does the increase in demand for ethanol.

Read this Issue Brief as a PDF.

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