Seeds of discontent

Prices for commodities are steadily rising and top food industry executives are grumbling that costs will not fall as long as the US government continues to subsidize corn growers for making ethanol.

The ethanol industry has been blamed for everything from rising food prices to environmental damage, and its heavy use of corn has even divided the farm community. Grain farmers celebrate record prices while livestock producers and bakers complain about rising costs.

The subject should be revisited by lawmakers, according to top executives at the Reuters Food Summit in Chicago recently. Some say production of renewable fuels should be capped or other benefits stripped away, or consumers' wallets will continue to feel the pinch.

"We would love to have that acreage focused on wheat and products that are going into food, but it is what it is at this point," Sara Lee Corp's North American Chief Operating Officer C.J. Fraleigh says of the corn being used for ethanol.

"The pure economics of ethanol does not support that as being a good economic decision," he adds. "In the short term, the use of corn for ethanol is not a good decision for the American consumer."

Ethanol has been touted as a way to reduce America's dependence on foreign oil. Corn use for ethanol tripled from 2001 to 2006, and the government estimates that one of every four bushels of corn produced this year will be used for ethanol.

Policymakers are pushing that surge. An energy bill signed into law in December calls for production of 9 billion gallons of renewable fuel this year, up from 5 billion in 2005, and rising to 36 billion gallons in 14 years.

The government also provides fuel makers a tax credit for blending ethanol into auto fuel and has a tariff on imported ethanol.

Good idea, but...

While the executives at the summit lauded the goals of such a push, they say consumers may not like the consequences. Executives have been lobbying lawmakers, either directly or through trade groups, to take a second look.

"We certainly as a society want to decrease our dependence on foreign oil," says Rick Searer, president of Kraft Foods Inc's North American operations. "Unfortunately, the biofuels mandate is having unintended consequences in terms of its impact on the price of food."

He points to more farmland used for corn and less for soybean and wheat, resulting in higher prices on the latter two commodities even as corn prices continue to spike on the heavier demand.

Suggested options vary. ConAgra Foods Inc CEO Gary Rodkin wants the government to offer incentives for biofuel producers to use more non-food alternatives and cap the amount of renewable fuels produced. He also would like to see regulators shift more land from conservation programs to use for food crops.

General Mills Inc CEO Kendall Powell agrees non-food options for biofuel would be a good step.

"It would be good if we could develop a really efficient and economic biofuels industry based on switchgrass or cellulose waste products," he says.

Other executives at the summit suggested changes in the tax credit or import tariff should be discussed.

However, P.F. Chang's China Bistro Inc CEO Richard Federico is less worried about commodity prices than his ever-rising labor costs. "This spike will run its course and commodities will go back to some level of normality," the head of the Asian-themed restaurant chain says.

Joe Sanderson, CEO of No 4 US chicken producer Sanderson Farms Inc, has a more pragmatic view, saying things are unlikely to change. "I wouldn't waste a lot of energy on it," he says of lobbying efforts. "There are 40 to ... 50 chicken processors. Do you know how many corn growers there are? There are more ethanol plants than there are chicken processors.

"The infrastructure for ethanol is built," he adds. "The ethanol plants are there and done. I don't think the price of chicken is as sensitive to consumers as the price of gas, and that is the calculation that the congressmen made."

Agencies

(China Daily 03/31/2008 page11)