OK, we now have enough studies frantically funded by corn growers to lay to rest the "cheap food" policy illogic foisted on credulous legislators and the public in general. Loudly proclaiming now that corn prices do not affect food prices (much), proponents of new plateaus of corn prices are notably silent on what benefit consumers therefore get from my fixed payment.
The dramatic increase in the use of crops for fuel is going to increase food prices, at least for the next several years. The magnitude of that increase however, may not be as large as some expect. Probably the three most important reasons why the impact will not be as large as in past years are: 1.) the share of the retail food dollar contributed by the farm level commodity value has been sharply reduced to just 20 percent today; 2.) the importance of food in consumer budgets has continued to drop such that the "food and beverage" category in the Consumer Price Index (CPI) is now weighted at just 15 percent; and 3.) the sources of our food are more global and diverse than in the past.
Retail level food prices are expected to increase an additional 1.2 percent to 1.8 percent above their 2006 level due to higher farm-level grain and commodity prices partially attributable to the use of grains and oilseeds for biofuels. This will roughly parallel the calendar years of 2007 and 2008. This analysis is based upon the assumption that higher farm-level commodity prices are eventually passed to retail food consumers. Our assumption is that transferal is dollar for dollar. Not all of the current increased food inflation is attributable to increased use of crops for energy, as poor weather conditions have also contributed to poor world wheat crops in 2006, and to losses of some fruit and vegetable production in 2007. [More]
Giving money to farmers likely has little downward effect on food prices - it mostly goes to inputs and land costs. The study is just the latest of several efforts to counter ethanol opponents in the food vs. fuel debate. Regardless on where you are on that issue, one thing is does do is refute the "cheap food" argument.