More of U.S. grain crop to be consumed by family car

Tom Doggett, Reuters 15 Jan 08;

WASHINGTON (Reuters) - Almost a third of the U.S. grain crop next year may be diverted from the family dinner table to the family car as fuel, putting upward pressure on food prices, a leading expert warned on Tuesday.

Grain prices are near record levels as the United States produces more ethanol, now made mostly from corn, to blend with gasoline and stretch available motor fuel supplies.

Farmers, hoping to cash in, are expected to grow 30 percent of next year's grain crop for ethanol use as more refineries that process corn into fuel come online, according to Lester Brown, president of the Earth Policy Institute and long-time critic of using food grains for fuel.

"The price of grain is now tied to the price of oil," Brown said at the Reuters Global Agriculture and Biofuel Summit.

As a result, he said, prices will go up for poultry, beef and pork as well as dairy products because corn is the number one animal feed for farmers.

"Our refrigerators are stuffed with corn," Brown said. For example, feed prices make up about 40 percent of the cost of poultry alone, he said.

The pressure on food prices from ethanol will only get worse as the new energy law passed last month requires U.S. ethanol production to soar from about 9 billion gallons this year to 36 billion gallons by 2022.

"What we see are cars beginning to compete with people for world grain supplies," Brown said. "We could see a consumer revolt in this country."

Brown said that an SUV with a 25-gallon tank filling up with ethanol would use enough grain, about 560 pounds (254 kg), to feed the average person for one year.

However, the Renewable Fuels Association, a trade group that lobbies for ethanol producers, says corn demand for ethanol doesn't have a big effect on retail food prices.

The group cites government data that shows labor costs account for 38 cents of every dollar spent on food, with packing, transportation, energy, advertising and profits accounting for 24 cents. Just 19 cents can be attributed to the cost of food inputs like grains and oilseeds, the group said.

Still, rising ethanol demand helped cut world grain inventories last year to an all-time low of just 53 days of demand, compared with the 70 days of grain stocks many food experts say is normal.

Brown said higher corn prices may bring back the backyard-type Victory Gardens last seen in World War II, with rural homeowners planting small plots of corn to cash in on growing ethanol use.

(Editing by Walter Bagley)