Monday, December 3, 2012

Living with High Food Prices ... Thanks to the Government

Food prices are high and probably going higher but not because of the drought. Credit government policies and ethanol rules instead.

A Mandate to Raise Food Prices is subtitled 'The cause of higher grocery bills isn't the drought. It's the failed federal ethanol policy:'

"Americans should understand that this year’s drought—the worst in 50 years—isn’t the primary reason for record-high food prices. The drought made things worse, but the leading driver of long-term increases in food costs is a deeply flawed federal mandate.

In 2005, Congress enacted the Renewable Fuel Standard to mandate the use of corn-based ethanol in gasoline. The cost of food commodities immediately began to rise. As a result, Americans have had to deal with some of the highest food prices on ­record. While the drought will end at some point, the price increases caused by the ethanol mandate will continue unless the government reverses course.

Proponents of ethanol argue that it lowers greenhouse-gas emissions and gas prices, but these findings remain subject to intense debate. The higher food prices all Americans now pay are indisputable.

Under the federal mandate, Americans must use 15 billion gallons of ethanol in gasoline ­annually by 2015. To meet this goal, 5.3 billion bushels of corn per year—equal to more than 40% of the 2011 corn crop—must be processed and burned as ­ethanol, not used for food or livestock feed.

The result: higher prices across the entire food chain, from products directly containing corn to protein raised on corn feed and crops that compete with corn for farmland. That includes the bread on the table, the eggs at breakfast, the chicken or steak at dinner, and almost all dairy products.

Since the enactment of the ethanol mandate in 2005, the use of corn in ethanol has skyrocketed to more than five ­billion bushels per year from 1.3 billion. Corn prices immediately began to rise, too, and in each year since they have exceeded the highest price seen between 1976 and 2006. Price increases also spread to other parts of the agricultural sector, as farmers switched to corn from other crops and livestock.

New research by PricewaterhouseCoopers (on behalf of the National Council of Chain ­Restaurants) finds that by the time the mandate’s 2015 goals are met, it will have caused a 27% increase in corn prices. ­Increased corn prices have ­already led to higher prices for other commodities, such as soybeans (by up to 16%), pork (by up to 15%) and poultry (by up to 8%). . . .

All the while, it isn’t clear what good ethanol use will be doing for the environment. This is especially true if the long-run impact of increased corn production is to convert forests into croplands, substitute normal crop rotation with practices that use more fertilizers, and further tax local water resources. If so, any net reductions in greenhouse-gas emissions can disappear altogether.

In exchange for an alleged benefit that is uncertain at best, the ethanol mandate effectively requires that Americans pay a tax on the food they purchase. However laudable the mandate’s intended goals, its downsides outweigh any possible benefits.

The chain-restaurant industry isn’t anti-ethanol. We simply believe it is time for the ethanol industry to stand on its own, as restaurant owners and operators do every day. Congress and the president should repeal the misguided Renewable Fuel Standard and allow the free market to allocate corn to its most highly valued use—not one ­imposed by a government that forces food to be burned for ­inefficient fuel."

Summing Up

Government political malfeasance and not the drought is the primary cause for our rising food prices. But don't the government officials say they want to help the economy in general and the middle class in particular? Well, they're sure not acting that way.

If the government knows best gang is intent on saving the middle class, as President Obama likes to say, how about helping the middle class save some more of their hard earned money? The best way to save money is not to spend it in the first place.

For sure, lower food prices would result in higher levels of MOM for the middle class and everybody else, too. Except perhaps for the agricultural industry and corn growers, that is.

But it's even better than that, or at least could be.

Drilling for more oil and eliminating the ethanol mandate would lower both food prices and the cost of energy as well.

It would also create more jobs and income for America's middle class, and even increase tax receipts for the federal government.

With all this potential middle class salvation at the ready, why don't our government gurus allow it to happen?

The ethanol and farm lobbies perhaps? Don't they want to save the middle class too?

And even if they don't, why don't the non-farm state legislators, led by the President, just go ahead and do the right thing anyway?

Or is all the political happy talk about saving the middle class just that --- happy talk?

That's the way it seems to me.

Thanks. Bob.

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