MILWAUKEE – A recently-released UW-Madison study shows that increased ethanol is not the main factor behind rising food prices.

The study, done by Renk Professor of Agribusiness Randy Fortenbery and Hwanil Park, shows that with ethanol production essentially doubling from 2006 to the end of 2007 – from 5 billion gallon of capacity to 11 billion gallon of capacity nationwide – corn prices would have increased by 16-25%, or 41 cents, keeping all other factors constant.

The increase in food prices “cannot be explained based simply on ethanol production and associated corn use (as has been the practice of the popular press),” the study says.

According to the study’s model, the price per bushel of corn at the end of 2007 would be $2.95 if increased ethanol production was the only factor, compared to real prices of nearly $4 per bushel.

“This study is just more proof that while ethanol takes the majority of the blame for rising food prices nationwide, other factors play a greater role in determining the price of corn,” said Joshua Morby, Executive Director of the Wisconsin Bio Industry Alliance (WBIA).

Other studies have found that rising oil prices have had a much larger impact on the cost of food than increasing corn prices. [Sources: LECG, LLC, “The Relative Impact of Corn and Energy Prices in the Grocery Aisle, June, 2007; Informa Economics, “Analysis of Potential Causes of Consumer Food Price Inflation,” December, 2007]

The Federal Reserve Bank of Kansas City also released a report earlier this year that cites increasing demand for food, as well as rising costs of labor and energy, as the main reasons for increased food prices. [Source: Federal Reserve Bank of Kansas City, “What is Driving Food Price Inflation?” The Main Street Economist: Regional and rural analysis, February, 2008]

“While people may think we have to make a choice between food and renewable fuel, we can, in fact, have both, as a number of recent studies have shown,” Morby said. “Ethanol is a cleaner, renewable alternative to fossil fuels, and it can help grow our state economy while reducing our dependence on foreign oil. While it may not be the silver bullet for our energy needs, ethanol deserves to be a part of our long-term energy strategy.”

To view the complete UW-Madison study, please visit www.aae.wisc.edu/pubs/sps/pdf/stpap523.pdf.

The Wisconsin Bio Industry Alliance is a diverse group of businesses, environmental groups, and statewide and local organizations that have come together to build both public and legislative awareness of the Bio Industry in Wisconsin.

For more information about the Alliance, or to find out how to join, please visit our website: www.wisconsinbioindustry.com.