Alabama Economist: Corn Is Not the Primary Cause Of Food Price Spikes

AUBURN UNIVERSITY, Ala. -- There is only a grain of truth to the charge that the rising cost of corn is causing food prices to spike, according to one Alabama Cooperative Extension economist.

Many consumers assume that a growing demand for corn-derived ethanol and the recent Midwestern floods have created a scarcity of corn, which, in turn, has driven up food prices.

But that is only partly true, according to this economist.

“The price of food is going up, but not just because of corn-derived ethanol or the Midwestern floods,” says Max Runge, an Alabama Cooperative Extension System economist, who stresses that other factors also are playing a role.

While acknowledging corn as one of the staples of the U.S. diet, Runge says many Americans overestimate its overall impact on the economy.

While corn is a staple food product, it, much like wheat, is widely distributed throughout the U.S. food supply, especially processed foods — a factor that tends to dissipate its effects on prices.

“The amount of grain that goes into processed foods such as high fructose corn syrup, the sweetener used in most beverages, and even into breakfast cereals is very small,” Runge says, adding that even doubling the price of the corn or wheat that goes into these products would not, in turn, double the price of the products.

In fact, packaging typically costs more than the grain that is in the product, he says.

A myriad of other factors also influence prices, including labor costs, packaging, transportation, handling and retail costs, Runge says, noting that the costs of all of these activities are rising too.

One major factor behind these price spikes is the ballooning price of oil — another factor which, much like corn, typically exerts a rippling effect throughout the economy.

As evidence of the comparatively minor role corn plays in overall food prices, Runge cites a study completed recently by Texas A&M University agricultural economists, who also concluded that corn played only a minor role in the recent spikes in food costs.

Comparing 2004 prices to 2007 prices, the researchers noted that the cost of corn syrup sweetener in a 12-pack of soda rose from 11 cents to 22 cents during a period when corn prices rose from $2 to $4 a bushel. Even now, higher priced corn contributes only about 44 cents to the cost of a 12 pack of soda, though the price of corn currently runs at about $8 a bushel.

The Texas A&M economists also cite rising fuel costs as another major factor behind the food price spike. But even higher energy costs, while an important factor in these general price increases, are only one contributor among many.

Many people also assume — mistakenly, Runge says — that farmers have reaped large profits from rising corn prices.

But fuel costs have taken a heavy toll on farmers just as they have on everybody else, Runge says.

“Most of the inputs and related products used by farmers are petroleum based, and the costs of production has increased more than 40 percent within the last couple of years,” he says.

Many have responded by planting fewer acres of corn and other crops.

Farm operations, like most commercial enterprises, also face higher levels of risk associated with these higher prices, he says.

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