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Winners and losers in ag economy
By Dana Yost
POSTED: May 28, 2008
MARSHALL — Ethanol and biodiesel production are getting an “inordinate” amount of the blame for rising food prices, Minnesota Agri-Growth Council President Daryn McBeth said Tuesday in Marshall.
He spoke at the monthly Schwan Speaker Series.
While renewable fuels that require crops are part of the equation, many other factors — often on a global scale — also affect food prices, McBeth said.
The Agri-Growth Council is a sort of umbrella-like advocacy group for a variety of farm and food industries. It is based in St. Paul.
McBeth said it’s hard to turn on a TV or radio or open a newspaper these days without seeing ag- or food-related stories at the top of the list. Ag is “squarely back in vogue,” as a leading topic which makes current developments important in Minnesota, he said.
Agribusiness is the state’s second-largest business behind manufacturing, and employs about 16 percent of the state’s workforce, he said. Just more than half of the state’s lands are farm lands, he said.
“The agriculture economy makes winners and losers,” McBeth said. “Things are booming in commodity prices, but at the same time (there are higher prices) for food.”
He pointed to recent headlines in major papers that said things like “$6 for a loaf of bread?” “Food riots,” and “prices rise, portions shrink.”
“I’m not assigning blame, but fuel prices are probably receiving an inordinate amount of blame,” he said.
Certainly, more grain has been used for ethanol and biodiesel — about 30 percent of all corn goes toward ethanol production, up from 5 percent in the 1990, and that is projected to reach about 40 percent soon.
But there are “big picture” reasons for the higher food prices beyond renewable fuels, McBeth said.
One can be found in a basic look at the New York mercantile energy prices, which show huge spikes in costs for retail gasoline since 2006.
Another is the fall off in employment in the last few quarters of 2007.
Another is the “major decline” in the U.S. weighted trade dollar.
And, producers are getting plenty of incentive to sell corn or beans for biofuel.
“The current economic slowdown comes at a time that public policies encourage renewable energy production,” he said. “It’s a combination that can be frustrating.”
Minnesota has enacted aggressive renewable fuels standards, and federal policies also have changed to encourage or aid renewable production.
Another debatable point is whether renewable production actually punctures the dependency on oil, he said. Even if the U.S. devoted all of its corn and soybean production to ethanol and biodiesel, it would offset only 12 percent of U.S. gasoline use and 8 percent of diesel consumption, he said.
That makes some wonder whether it’s worth it. He said some say it’s better than nothing, while others say it’s so minimal an impact on gas use the grain should all be used to fight hunger.
“Should public policies be encouraging/helping renewable fuel production?” McBeth asked. “I’m not standing here telling you it should or shouldn’t. I am saying there are benefits and there are consequences.”
While acknowledging the food and fuel controversy, McBeth said he believes the positives of renewables production outweigh the negatives, especially for ethanol.
And in areas where he said critics hammer on ethanol, their arguments are debatable: While some say ethanol production has a negative carbon impact on the environment, he said arguments can be made that it is still better for the environment. While it takes a lot of water to produce a gallon of ethanol, that water is largely recycled. And while hunger has increased and ethanol’s claim on corn has increased at the same time, it’s not necessarily so that impoverished nations are losing corn to ethanol.
“The top 10 countries for undernourishment receive only 1/100th of the U.S. commodity exports,” McBeth said.
The larger global picture is that production is down around the world, and isn’t ramping up fast enough to meet the demand or rising prices. Other countries, along with the U.S., have the potential to produce more grain but haven’t done so yet — sometimes affected by global weather issues, or other issues specific to their countries. But the world market has the capability of increasing production to meet the demand, he said.
Food most often hit by rising grain prices in U.S. markets are poultry, hogs and milk, he said. Hog producers are struggling to make it because of rising costs. Yet, he said the costs of protein foods like meat have tracked lower than inflation since the 1980s, and are only recently showing spikes above inflation.
He ended his talk with a look at the recently passed farm bill: Consumers shouldn’t expect much food-price salvation from the farm bill in the short term.
“It will affect some things on the margin, but there won’t be major shifts,” McBeth said. “The farm bill is not intended for that. The new farm bill is basically the status quo.”
He spoke at the monthly Schwan Speaker Series.
While renewable fuels that require crops are part of the equation, many other factors — often on a global scale — also affect food prices, McBeth said.
The Agri-Growth Council is a sort of umbrella-like advocacy group for a variety of farm and food industries. It is based in St. Paul.
McBeth said it’s hard to turn on a TV or radio or open a newspaper these days without seeing ag- or food-related stories at the top of the list. Ag is “squarely back in vogue,” as a leading topic which makes current developments important in Minnesota, he said.
Agribusiness is the state’s second-largest business behind manufacturing, and employs about 16 percent of the state’s workforce, he said. Just more than half of the state’s lands are farm lands, he said.
“The agriculture economy makes winners and losers,” McBeth said. “Things are booming in commodity prices, but at the same time (there are higher prices) for food.”
He pointed to recent headlines in major papers that said things like “$6 for a loaf of bread?” “Food riots,” and “prices rise, portions shrink.”
“I’m not assigning blame, but fuel prices are probably receiving an inordinate amount of blame,” he said.
Certainly, more grain has been used for ethanol and biodiesel — about 30 percent of all corn goes toward ethanol production, up from 5 percent in the 1990, and that is projected to reach about 40 percent soon.
But there are “big picture” reasons for the higher food prices beyond renewable fuels, McBeth said.
One can be found in a basic look at the New York mercantile energy prices, which show huge spikes in costs for retail gasoline since 2006.
Another is the fall off in employment in the last few quarters of 2007.
Another is the “major decline” in the U.S. weighted trade dollar.
And, producers are getting plenty of incentive to sell corn or beans for biofuel.
“The current economic slowdown comes at a time that public policies encourage renewable energy production,” he said. “It’s a combination that can be frustrating.”
Minnesota has enacted aggressive renewable fuels standards, and federal policies also have changed to encourage or aid renewable production.
Another debatable point is whether renewable production actually punctures the dependency on oil, he said. Even if the U.S. devoted all of its corn and soybean production to ethanol and biodiesel, it would offset only 12 percent of U.S. gasoline use and 8 percent of diesel consumption, he said.
That makes some wonder whether it’s worth it. He said some say it’s better than nothing, while others say it’s so minimal an impact on gas use the grain should all be used to fight hunger.
“Should public policies be encouraging/helping renewable fuel production?” McBeth asked. “I’m not standing here telling you it should or shouldn’t. I am saying there are benefits and there are consequences.”
While acknowledging the food and fuel controversy, McBeth said he believes the positives of renewables production outweigh the negatives, especially for ethanol.
And in areas where he said critics hammer on ethanol, their arguments are debatable: While some say ethanol production has a negative carbon impact on the environment, he said arguments can be made that it is still better for the environment. While it takes a lot of water to produce a gallon of ethanol, that water is largely recycled. And while hunger has increased and ethanol’s claim on corn has increased at the same time, it’s not necessarily so that impoverished nations are losing corn to ethanol.
“The top 10 countries for undernourishment receive only 1/100th of the U.S. commodity exports,” McBeth said.
The larger global picture is that production is down around the world, and isn’t ramping up fast enough to meet the demand or rising prices. Other countries, along with the U.S., have the potential to produce more grain but haven’t done so yet — sometimes affected by global weather issues, or other issues specific to their countries. But the world market has the capability of increasing production to meet the demand, he said.
Food most often hit by rising grain prices in U.S. markets are poultry, hogs and milk, he said. Hog producers are struggling to make it because of rising costs. Yet, he said the costs of protein foods like meat have tracked lower than inflation since the 1980s, and are only recently showing spikes above inflation.
He ended his talk with a look at the recently passed farm bill: Consumers shouldn’t expect much food-price salvation from the farm bill in the short term.
“It will affect some things on the margin, but there won’t be major shifts,” McBeth said. “The farm bill is not intended for that. The new farm bill is basically the status quo.”
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