Dear Sen. Grassley (IA)

United States Senate
Charles E. Grassley
Washington, DC 20510-1501

June 27, 2008

Christopher L. Jorgensen
P.O. Box 546
Ames, IA 50010

Dear Mr. Jorgensen:

Thank you for taking time to contact me.  As your senator, it is important for me to hear from you.

I appreciate hearing your thoughts regarding the high price of food and your thoughts regarding the use of ethanol as a renewable motor fuel. For almost 30 years, I have been leading an effort with many of my colleagues to promote policies to grow a domestic renewable fuels industry. We have promoted homegrown renewable fuels as a way to lessen our dependence on foreign oil and to improve our air quality.

I have heard the argument about the effect of corn ethanol on domestic and global food prices. Food prices are going up.  Of course, we all have to be sympathetic to that, whether it is in America or abroad.  People struggling with higher prices for food is not something we like to hear.  However, to put all the blame at the feet of the U.S. ethanol industry is misplaced.

With regard to wheat, rice, and lentils, economists indicate that the global demand for food from a growing middle-class in China and India has had the most impact.  Weather trends, including a historic drought in Australia and poor growing conditions in Southeast Asia and Eastern Europe have had a much greater impact on the supply of rice and wheat.  The truth is, global demand and prices for all commodities have increased.

One of the biggest reasons for rising food prices is the rising cost of oil. A recent Texas A&M study concluded that the biggest driving force behind the higher food costs is higher energy costs.  Iowa State University’s Center for Agriculture and Rural Development has stated that without the ethanol we have, you would be paying 30 to 40 cents more for a gallon of gasoline. Since Texas A&M says energy is the biggest reason for the increased costs of food, you would have yet higher food prices without having ethanol.

Joseph Glauber, chief economist at the U.S. Department of Agriculture, recently testified that rising prices for corn and soybeans have had little or no effect on the high price for wheat, rice, and other food commodities.  Dr. Glauber cited worldwide economic growth, global weather problems, rising marketing costs, and a weak U.S. dollar as having a greater role than biofuels in the cost of food being higher and even being scarce.

U.S. farmers responded to these increased demands for grain and produced a record corn crop in 2007. We grew more acres of corn in 2007 than any year since 1944.  We produced 2.7 billion more bushels of corn in 2007 than 2006. Out of those 2.7 billion bushels, the growth in ethanol demand only used the equivalent of 600 million of them.  Those who are concerned about not having enough corn need to take into consideration the 2.1 billion bushels more that we raised that was not used for ethanol.

Exports have grown as well.  The U.S. Department of Agriculture estimates that this year’s corn exports will be a record 2.5 billion bushels.  This is up 18 percent over last year.  We are getting that surplus production in the United States around the world where it is needed.  One of the places it is needed is in China.  They do not export corn anymore.  In the 1980s, the Chinese were eating 44 pounds of meat a year.  The most recent data shows the Chinese are now eating 111 pounds of meat a year.  They are going from rice to value-added food products.  They need some of our corn to do that and we are glad to sell it to them.

With these facts, it is hard to argue that the domestic ethanol industry is diverting corn from feed or food markets.  It is also important to keep in mind that a tiny fraction of the cost of retail food is the result of farm inputs.

According to the USDA, just 19 cents of every consumer dollar spent on food can be attributed to the actual cost of food inputs like grains.  A standard box of corn cereal contains approximately 10 ounces, or 1/90th of a bushel of corn.  If a bushel of corn is worth $4, a box of cereal has less than a nickel’s worth of corn. In meat production, 3.6 pounds of corn is needed to produce one pound of pork.  At $3.50 per bushel for corn, the cost to produce one pound of pork is a mere 22.5 cents.

The truth is that ethanol is reducing our dependence upon foreign oil.  Ethanol has a significant net energy balance.  The same cannot be said for gasoline.  Ethanol is reducing our greenhouse gas emissions.  Ethanol is not the reason for rising food and feed prices here at home or abroad.  Ethanol is lowering the price of crude oil and lowering the price of gasoline.  Ethanol is increasing our national security, helping our balance of trade, reducing our dependence upon Middle East oil and the whims of big oil.

Again, thank you for contacting me.  I appreciate hearing your views and urge you to keep in touch.

Sincerely,

[signed with autopen]

Charles E. Grassley
United States Senator

CEG/cs