Americans are feeling the pinch of high gasoline prices, but the fuel could cost as much as 5 cents to 10 cents more a gallon if it was not routinely blended with ethanol. Overall, U.S. consumers and taxpayers benefit from saving $7 billion to $14 billion in lower gasoline costs as a result of increased ethanol use, according to Terry Francl, senior economist at the American Farm Bureau Federation.

Francl said Americans will benefit in other ways, too. After farmers endured years of barely breaking even with corn priced around $2 a bushel, today’s relatively high market prices for corn, soybeans and other crops mean federal farm program payments will be reduced by at least $8 billion and possibly as much as $12 billion annually, he said. The overall gains to the economy from ethanol will more than offset any incremental food price increases associated with the production of biofuels.

These and other points about the emerging ethanol industry were shared by Francl during his presentation at a renewable fuels conference in Omaha today. The aim of the 25 x ’25 Alliance, the sponsor of this week’s National 25 x ‘25 Renewable Energy Summit, is to advance the concept that by 2025, 25 percent of U.S. energy needs will be met by resources produced by this country’s farms, forests and ranches.

Among the major factors influencing the prices of key U.S. crops and the foods derived from them are investors’ growing interest in commodity-focused funds, rising world demand—particularly in China and India where middle-class populations are expanding, years of declining stocks of essential crops and the falling value of the U.S. dollar. 

“Commodity funds, in particular, have helped drive up prices and made prices more volatile—with frequent and large movements up and down the price scale—as investors move in and out of the markets, especially the futures market,” Francl said.

High crude oil prices are another contributor to today’s high crop and food prices, but Francl emphasized the extent to which increased use of ethanol and biodiesel may stem even higher gas prices.  

“It’s easy to say the growth of the ethanol industry is leading to higher fuel and food prices, but that’s just not the case,” Francl said. “Complex and overlapping issues that developed over several years are at play, and the growing use of ethanol actually helps keep gas prices from going even higher.”  

In addition, Francl said the U.S. benefits in other important ways from the burgeoning domestic ethanol industry. Besides a reduced reliance on foreign energy sources, the ethanol energy industry spurs new job growth and economic growth in rural areas. Ethanol also helps the environment because it is made from corn and other renewable resources.

Source: American Farm Bureau Federation