Op-Ed: U.S. federal mandates causing financial pain

Posted Mar 23, 2011 by Thomas Amshay
You don't have to buy corn to be affected by its price, just fill up your tank and take a trip to the grocery store or mall.
Fertlizing Corn
A farmer applying fertilizer to his corn crop
Lynn Betts
The United Nation's Food and Agriculture Organization (FAO) March report states that global food prices have gone up for eight consecutive months hitting their highest levels since it began tracking them in 1990.
The FAO report echoes U.S. food industry reports published recently by this writer.
While increasing food demand worldwide along with natural disasters are connected to rising prices, U.S. federal mandates on corn and ethanol production are major factors say some economists.
FAO's Global Food Monitor reports current food prices at world, regional. and country levels in developing countries. U.S. corn prices are approaching $7 a bushel, which is nearly $5 higher than historic norms.
Renewable fuel policies have pushed corn-for-ethanol demand up roughly 40 percent, according to C. Ford Runge, professor of economics and law at the University of Minnesota. Those federal mandates require the same annual production of ethanol regardless of the price of corn.
Within normal economic conditions if the price of corn goes up demand would fall and so would prices. But mandates mean steady demand no matter what the price. Some call that a monopoly, or worse.
Some experts predict that within four years more farmers will plant corn to take advantage of the high prices, and so the supply will catch up with demand and cause a price drop. However, that lower price will remain higher than historic norms according to professor of agricultural economics, Wallace Tyner at Purdue University.
When the U.S. experienced a similar price hike in 2007 and 2008, the Congressional Budget Office concluded that increased demand for ethanol accounted for between between 10 and 15 percent of the price increase.
Experts may disagree on the finer points of this issue, but pretty much everybody that buys anything can agree that prices are going up all over the place.