Grocery Manufacturers Accused of Food and Fuel Hoax
Mike Bryan, publisher
and chief executive officer of Ethanol Producer Magazine, has accused the Grocery Manufacturers Association
(GMA) of promoting a hoax on the American public with allegations that
corn-based ethanol has been responsible for driving up the cost of food
in the past year.
As evidence, Mr. Bryan
points to the recent decline in oil and commodities such as corn even though
ethanol production has continued to rise. He also questions why food prices
that went up as a result of fuel and feed have not come down considering
the precipitous decline in those commodities in the past month.
Mr.
Bryan wrote, “It’s all been a farce, a marketing strategy of criminal
proportion that has allowed the greed of the GMA to encourage grocers across
the country to raise consumer prices and blame fuel-grade ethanol.”
According
to Mr. Bryan, there has been no tradeoff with farmers having to choose
between selling corn for fuel or food. There has, he asserted, been enough
to fulfill the market’s needs.
“We have always had more than enough grain. This year’s corn crop will
be the second-largest in history.”
Mr. Bryan believers GMA
has done a disservice to farmers and the American consumer. “The
grocery industry was able to convince Congress and others that higher commodity
prices were starving people and causing human catastrophes of epidemic
proportion. The true fact is that those high commodity prices were the
only global bright spot for agriculture. It’s an opportunity lost for countries
around the world to improve their self-sufficiency by cultivating millions
of acres of arable land that now lies fallow because of low prices.”
Discussion Question:
What is your reaction to Mike Bryan’s assertion that the Grocery Manufacturers
Association has led a hoax on the American pubic about the role of corn
in rising food prices?
The rise of fuel cost did cause a domino effect into the rise in the cost of corn, soybeans, wheat, etc, which are key inputs into so much of the food chain. When those costs rose, manufactures were forced to react with price increases to recoup as much of that increase as possible.
Manufacturers would love to be able to easily reverse many of these increases, but the challenge becomes the execution at retail to the consumer. Retailers are quick to increase shelf prices when manufacturers increase price, but when manufacturers reduce prices, many retailers wait a while or do not pass the full reduction onto consumers. As a result, manufactures may respond with greater promotions or more tactical price responses versus blanketing a straight price reduction.
To say that 25% (or something like that) of a commodity can be taken off the market with no effect on prices displays a stunning lack of understanding of supply and demand.
Ethanol should be produced from non-food crops.
Bryan’s brief editorial is an interesting bit of justification in hindsight. By scapegoating GMA, it seems calculated to distract from the legitimate debate about the use of agricultural lands to produce fuelstuffs instead of foodstuffs. At the same time it glosses over the larger economic context, including currency values and the regulatory practices of other nations.
The GMA was surprisingly vocal on the ethanol issue a few months ago. The reasoning linking global food commodity panics to ethanol production was possibly thin. But Bryan’s editorial suggests the ethanol producers felt deeply threatened by this. If the product is such a good deal for Americans, why so much worry about a few press releases?
Calling GMA’s statements a “hoax” and a “marketing strategy of criminal proportion” seems disingenuous. And to maintain that food prices should decline because ethanol producers are facing softer prices for their non-nutritive end product reveals a limited (or selective) grasp of economics.
My theory: Corn-ethanol agribusiness may have made some hasty and ill-advised bets during the latest oil price surge, spurred on by government incentives. Now they are stuck with both costly debt service and low market prices. If true, that’s a tough break.
Where would the ethanol producers be in the absence of federal subsidies? In fact, where would Bryan’s magazine be? My bet: In a different business.
There are none so blind as those who refuse to see!
The Ethanol industry wagging a finger at the Grocery Industry for irresponsible behavior is akin to CNN claiming that FOX is biased.
There is truth in what Mike Bryan has stated but it is not the whole truth. The marketplace is always the best place to set prices and through demand and supply, pricing will correct itself.
The ethanol industry is highly protected and subsidized industry with an uncertain future. American Grocery Retailers have successfully competed with one another for years in an unsubsidized industry (retail) where consumer prices in the food sector have taken smaller and smaller amounts of consumers disposable income as real prices in food commodities have declined.
Rising input and logistics costs must be passed on to consumers and there will be a lag effect between the current price of these inputs and the current price of products on the shelf.
If I were Mike Bryan, I would spend more time noodling through his industry’s murky future and start looking for alternatives to low yield corn as an ethanol input and to more sustainable raw materials such as switchgrass.
I concur with Mike Bryan. However as grocers we need to justify higher prices for reasons other than our own greed. That would make for bad press. Using corn as a scapegoat keeps us from alienating our customers.
Consumables should not be used for fuel. Many alternative, non-consumable crops are being successfully tested for biofuels. Private investors and government should fully support these efforts.
There is no global conspiracy around the production of ethanol. The prices are high because of the incentives and tax breaks passed by congress. However, this only produces an artificial lag in the price declines of ethanol. As demand continues to decrease, the price will fall, and the production of ethanol will decrease. This is the law of supply and demand that even ethanol must follow.