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With the price of corn hitting $6 per bushel last week, many people are blaming the rising prices of commodities and food on biofuels production. But are biofuels the sole reason why Americans are seeing higher grocery bills? During today's OnPoint, Scott Faber, vice president of government affairs at the Grocery Manufacturers Association. calls on Congress, EPA and the states to freeze and roll back biofuels mandates in order to stop food prices from continuing to climb. Faber explains why he believes opening up CRP land will have a minimum effect on helping to meet the surging demand for biofuels. He also explains what GMA member companies are doing to help bring food prices down.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Scott Faber, vice president of government affairs at the Grocery Manufacturers Association. Scott, thanks for coming on the show.
Scott Faber: My pleasure, glad to be here.
Monica Trauzzi: Scott, a big focus in the mainstream media recently has been on the rising price of food as a result of the increasing biofuels mandate and requirements. The Grocery Manufacturers Association is asking Congress, the EPA, and states to freeze and rollback these biofuels requirements. Why are you asking the government to do this? It's something that people fought long and hard for, these biofuels mandates. Why are you asking them to do it?
Scott Faber: Well, it just doesn't make sense at a time when thousands of Americans are clinging to their jobs and cleaning to their homes, to artificially increase the price of food through these food-to-fuel mandates. It's no surprise to you that when you divert a third of your corn supply into your gasoline tanks that that's going to drive up the price of corn and that the rising price of corn is going to trickle throughout the economy driving up the price of food. Right now we're seeing food prices increase by about 5 percent annually. We're expecting that to increase to 7 or 8 percent annually as the mandate grows. And for some products, the increase in prices is even more significant. Egg prices are up 70 percent from three years ago. So it seems like, especially in light of recession, the housing crisis, high energy prices, now is the time to revisit these mandates and not take steps to make these problems significantly worse.
Monica Trauzzi: Is that a responsible request though considering that our level of dependence on foreign countries for oil is very high, we also need to reduce our emissions, and biofuels can help us achieve both of those goals?
Scott Faber: That's right. Well, as you know, the amount of ethanol that's being blended into our gasoline supply is literally a drop in the bucket compared to the amount of gasoline that's put into our cars every year. This year we'll blend about 7 billions gallons of ethanol into our gasoline supply. That's a 140 plus billion gallon gasoline supply. So we're talking about 2 percent of our gasoline being displaced by ethanol. It's having virtually no impact on our dependence on foreign sources of energy, but it's having a huge impact at the grocery store. And certainly, for some people, people on fixed incomes, the working poor, those increases in food prices are being felt very significantly. Unfortunately, some people are having to decide whether to put a can back on the shelf or skip a meal entirely and it just doesn't make sense to pit our energy needs against our hunger needs or environmental needs. I don't think Congress never intended to do that.
Monica Trauzzi: So, do you think that there are people who are out there who used to buy corn flakes and are not buying them anymore because the price is higher?
Scott Faber: Absolutely. And it's not just corn flakes. When you drive up the price of corn farmers are, obviously, planting more corn. That means they're planting less soybeans and wheat. And as supplies of those crops have tightened the prices for those basic commodities have gone up as well. So, it's not the only reason, but it's one reason that we're seeing across the board increases in basic staples like milk, meat, eggs, and so on. So people aren't only deciding whether or not to buy that box of corn flakes, they're deciding whether to buy that pound of beef or that pound of chicken or that gallon of milk. Every day they're making decisions that they weren't being forced to make just a year ago.
Monica Trauzzi: How, specifically, are GMA member companies being impacted in terms of their bottom line?
Scott Faber: Well, members obviously feel it differently depending on what they produce, whether they're producing chicken or eggs or corn flakes or cereals or so on. But every member, every food company in America is feeling the cost of the biofuels mandates, these food-to-fuel mandates, some much more significantly than others. It's especially true in the meat sector. For every farmer, every corn farmer who's benefiting from this mandate, there are two or three livestock farmers who are seeing their feed grain prices increase dramatically. And some meat companies are now, in turn, being forced to look very hard to layoffs and other decisions as the basic cost of doing business goes up.
Monica Trauzzi: The Grocery Manufacturers Association represents 300 food, beverage, and consumer household goods producers, and that includes Kraft, Coca-Cola, Pepsi Company, General Mills. How much of this is sort of big business spend, trying to get products throughout the country as staples around the world? Is this really about the environmental and economic impacts or is this about the impacts on the companies themselves and making sure that they're making a lot of money?
Scott Faber: Well, clearly, the Grocery Manufactures Association is concerned about the bottom line of its members, but our concerns don't end there. We're seeing significant problems that the price of food is having on hungry people, not just here at home, but abroad as well. As you know, 800 million people across the globe are hungry. And because of these food-to-fuel mandates, the UN World Food Program, USAID, have been forced to cut off entire countries from getting food assistance; have been forced to ration food supplies in those countries that we continue to serve. And so we're seeing significant increases in hunger, not just in the United States, but in many parts of the world where you wouldn't want to see failed states as a result of rising food costs.
Monica Trauzzi: Why do you think we're seeing these high commodities prices? Some people say it's not only due to biofuels, it's due to extreme weather, things of that nature. What do you see as the main reason why we're seeing it?
Scott Faber: Well, there are many reasons, obviously, rising demand for food in places like China and India, poor weather in some parts of the world, the value of our currency. But the food-to-fuel mandates are responsible for up to half of the increased costs at the grocery store that we're seeing today. But even more importantly, these food-to-fuel mandates are the only thing that Congress and administration have the power to change. We can't do anything about the weather. We can't do anything, or should we, about the fact that people in China and India want to enjoy a higher standard of living. We can't do anything about the value of our currency. These food-to-fuel mandates are the one artificial step, the one policy choice that this government has taken that has artificially driven up the price of food. And it's the one policy choice that we can now change in light of this change in circumstances. You know, nobody a year ago imagined that we'd be going into a recession or that tens of thousands of people would be losing their jobs or that hundreds of thousands of people would be losing their homes. And so it just seems responsible for Congress to step back and say we need to revisit these mandates. We need to consider whether to freeze or postpone or somehow change the schedule of mandates so that we're not adding this additional burden of significantly higher food costs on the backs of Americans at a time of recession.
Monica Trauzzi: Well, let's say that these mandates were frozen. Wouldn't then the price of oil continue to rise and wouldn't that, in turn, cause the price of food to continue to go up?
Scott Faber: You know, the food-to-fuel mandates have virtually no impact on the price of gasoline, the wholesale price or the retail price of gasoline at the pump. And if you went online today and you looked at what's called the rack price for ethanol and the RBOBs are the two measures of the wholesale cost of ethanol and the wholesale cost of gasoline, you would find that they're basically about the same today. In fact, the rack price for ethanol is slightly higher today than the wholesale price of gasoline. And so let's take off the table the notion that the ethanol mandate is having any affect whatsoever on the price of gas at the pumps, having no affect whatsoever. As we've already talked about, is having virtually no impact on our dependence on foreign sources of energy. Maybe 1, maybe 2 percent of our energy is now being produced domestically that used to be produced overseas. So the real question is if we're not reducing the price at the pump, and we are increasing significantly the price of bread, milk, eggs, and meat at the grocery store, does this policy make any sense whatsoever?
Monica Trauzzi: So, are we at the point of no return right now? Are food prices high and are they going to stay high or is there a point where we can sort of scale back and bring them back to a reasonable level?
Scott Faber: Well, clearly, if Congress stepped in today and reversed these mandates, lowered the mandates, changed the mandates, lowered the numbers, spread out the number of years it would take to meet the mandates, the marketplace would respond. The futures market would change. The futures price for corn, soybeans, and wheat would fall dramatically. So, if Congress wanted immediate action, wanted to take immediate steps to reduce the impact of the rising food prices on ordinary consumers, the first step, the one step that's under their control, is changing these mandates. But the other part of the answer to the question here is that, yes, there are a number of factors that are driving food prices higher. Strong Asian demand, that's not going to change, that's going to get worse. Changing weather, I think everyone recognizes that we're going to see more droughts, more severe weather because it our changing climate. And then the third issue is currency. We don't really quite know what to expect from currency, but a likely scenario is that the dollar could continue to weaken. And all of those things are things that are likely to continue in the next 2, 3, 5 years. Why in the world would Congress make those problems worse by artificially diverting a third or more of our corn supply into our gas tanks? That just doesn't make any sense whatsoever.
Monica Trauzzi: Is there something that your member companies could be doing to sort of alleviate some of that pressure and bring the prices down?
Scott Faber: Well, we're doing everything we can to manage through this without increasing the price of food at the grocery store. But, inevitably, these companies are going to have to pass these costs along to the consumer. So, I think the part that should concern consumers is not that food prices are rising 5 percent annually, which is twice the rate of inflation, what should concern them is that these increases are largely in response to the 2005 mandate. We haven't really begun to see what the effects of the 2007 mandate, the one Congress just enacted last year, will have on food prices as we go from 7 billion gallons to 9 billion gallons, to 11 billion gallons of corn ethanol being blended into our food supply. And so I think the good news is are only rising 5 percent. They could rise much more significantly and that's especially true if there's a drought. In some respects, we've been lucky. We have not experienced the kind of drought here in the United States that we did in the late 80s. But if we have severe weather in the United States this summer, then we could see food prices growing very significantly.
Monica Trauzzi: So, should we be holding off then until we have cellulosic technology that's implementable? I mean is that what we're talking here, waiting until we don't have to use corn anymore?
Scott Faber: Absolutely. Let me just start by saying it just doesn't make sense to pit our energy needs against the needs of the hungry and the environment. And, given the small amount of foreign energy that's being displaced by corn ethanol, obviously, we don't need to - there isn't some silver bullet here that we need to fire off today because tomorrow we won't be importing oil from the Saudis or from Venezuela. So, it does make sense to take the time to get fuels made from crop waste, wood waste, grasses, cellulosic ethanol up to commercial scale for two reasons. One is you're not burning your lunch to pay for your ride home. That makes no sense. The second is cellulosic ethanol, ethanol made from crop waste and wood waste, has the potential to have a much smaller footprint for the environment. And the third reason is, is that the feedstocks available. Harvesting switch grass from land that's now primarily used for pasture, harvesting crop waste, are likely to be much more abundant and much more widely available than corn or sorghum or sugar, which are now the primary, commercially viable feedstock. So, we shouldn't rush into a situation where we're burning a third or more of our food, our corn crop, to solve a problem that we're not going to solve this year or next year or in the next five years.
Monica Trauzzi: Final question here. Would planting crops in conservation areas help alleviate some of the pressure that's currently on the corn industry in the amount that they need?
Scott Faber: It would have ...
Monica Trauzzi: This is something that has been discussed on the Hill right now.
Scott Faber: Absolutely. Yeah, I know and it would have little or no impact on the price of corn to open up the conservation reserve program or the big land retirement programs to corn production for a couple of reasons. One is most of those lands are incredibly marginal. They don't produce significant amounts of corn, even if they were planted to corn. The second is that we need those lands to act as buffers between our corn fields and our rivers, lakes, and bays. So, as we're planting more and more corn, although this year unfortunately we're going to plant 2 million acres of significantly less corn that we did last year, you know, we're going to see more and more of nitrogen and other pollutants getting into our waterways. So, there are some things we can do to reform those land retirement programs, to better target those acres to buffers along streams and so on. But wholesale opening of the CRP program wouldn't do much to help alleviate high prices.
Monica Trauzzi: All right, we'll end it right there on that note. Thanks for coming on the show.
Scott Faber: All right, thank you.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]
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