Raising the allowable levels of ethanol in conventional U.S. gasoline would help push up prices for corn and other grains and ultimately meat and dairy, economists associated with food groups said on Tuesday.
The government allows conventional gasoline to be blended with up to 10 percent ethanol. But the ethanol industry, which has grown rapidly during the last two years amid generous government incentives and mandates that call for more ethanol blending over time, wants the blend rate raised to 12 percent to 15 percent ethanol for the industry to continue growing.
Ultimately this will translates into higher livestock and dairy prices, and eventually further upward pressure on consumer food prices, said Bill Lapp, president of Advanced Economic Solutions.
He said in a report issued on Tuesday commissioned by the Grocery Manufacturers Association that 12 to 15 percent blends would push up the amount of land needed to grow corn to at least 100 million acres by about 2010 to 2015.
That would compare to 76.5 million acres that were the average from 1983 to 2006 and forecasts for 85 million acres this year. Such an increase could force corn farmers to take land away from other crops, helping to raise prices for all sorts of grains, he said.
Using 100 million acres could spike corn prices to a level that would make last June's price of about $7.50 a bushel, look like a walk in the park, Lapp told reporters in a teleconference.
Not everyone agrees a price rise would be steep. A study released earlier this month by the Food and Agricultural Policy Research Institute (FAPRI), a University of Missouri think tank, said under a 15 percent blend corn prices would average $4.08 a bushel, from 2011 to 2018, 4 cents higher than if there was no change in policy.
The U.S. Environmental Protection Agency is evaluating whether to lift the blend level beyond 10 percent. A major concern is whether the higher blends would hurt fuel lines and other aspects of car engines, especially in older vehicles. The EPA has said it has until December 1 to act upon a request to increase the blend level to 15 percent.
Ethanol producers say hybrid seeds and better planting techniques have increased corn yields.
Grain yields are projected to double in the next 20 years ... giving us ample amounts of grain for both food and additional fuel, Jeff Broin, chief executive of Poet, the top U.S. maker of the alternative motor fuel, told the Reuters Global Energy Summit last week.
Thomas Elam, president of FarmEcon LLC, who issued a report on Tuesday commissioned by the National Turkey Federation, about how increased blend levels would boost ethanol and food prices, said increased crop yields have not been as substantial as corn procurers claim. He also said yield increases will take greater use of fertilizer, which can add to environmental problems like polluting water.
And using more corn to fuel cars leaves the fuel and food systems more exposed to bad weather, the economists said.
Lapp said every four years corn yields slip 7 percent or more below the trend due to weather and other natural causes, leaving energy and feed markets vulnerable to shortages.
Both groups that commissioned the reports are members of the Food Before Fuel campaign, an organization of food, retail and environmental groups that urges Congress to rethink policies encouraging crops to be used to make fuel.
(Editing by Lisa Shumaker)