The Renewable Fuel Standard (RFS), which was recently amended to address numerous criticisms, is again under fire, this time for its potential effect on food prices. The RFS program requires an increasing volume of renewable fuel to be blended into transportation fuel each year and since its implementation in 2005, the US has become the world’s largest producer of ethanol fuel, a corn-based renewable fuel.
Yet many RFS critics argue that the mandate is responsible for driving up food prices. The authors of this UC Davis study concluded that “Corn prices were about 30 percent greater between 2006 and 2011 than they would have been without the mandate,” on account of factors such as a surge in corn storage in anticipation of ethanol‐production increases.
The U.S. livestock and poultry industries have expressed their support for legislation to repeal or amend the RFS. Senator Ben Cardin (D-MD) is currently writing a bill to reform it, and Senators John Barrasso (R-WY), Mark Pryor (D-AR) and Pat Toomey (R-PA) recently introduced “The Renewable Fuel Standard Repeal Act” (S. 1195).
An ABF Economics study recently concluded, however, that there is no direct correlation between the RFS and the overall increase in food prices. In a hearing on the RFS, Dr. Joseph Glauber, Chief Economist for USDA offered this testimony: “Corn ethanol production has been a factor; however, the rise in commodity prices over the past few years has been due to a variety of factors, such as increasing global demand, key production shortfalls due to droughts, as well as increasing energy prices, and any increase in farm prices for corn and soybeans due to increased biofuels production has likely had only a small effect on U.S. retail food prices.”
Are food prices impacted by the RFS? If so, what is the best way to balance the use of ethanol with the impact on food prices?