Minnesota Farmers Union

(June 5, 2009) - Grain and livestock producers are not the only ones affected by the increase in crop prices that began in September 2006; urban consumers have been affected as well, or at least indices of food price changes would suggest so. Between September 2007 and September 2008-just after crop prices hit their peak-the retail cost of cereals and bakery products for urban consumers increased by 12.3 percent. Between January 2000 and December 2005 the year on year price increase for cereals and bakery products averaged a little over 2 percent.

As prices peaked, some conceptualized the issues as one of food vs. fuel as much of the consumer price increase was attributed to the increased demand for corn as the basic component of ethanol production. The ethanol demand for corn increased by nearly 100 percent between the 2005 and 2007 crop years while corn prices increased by 149 percent. It is easy to understand why ethanol was identified as the underlying culprit of the jump in food prices.

But the increase in food price is much more complex than just an "ethanol did it" story. In fact, not even the corn price increase itself is simply an ethanol-did-it story. Let's first take a brief look at the run up in corn prices before discussing the food price issue.