UPDATE 2-Texas seeks US ethanol cutbacks; cites corn costs

(Adds EPA spokesman, ethanol industry group, Virginia)

By Joan Gralla

NEW YORK, April 25 (Reuters) - Texas Gov. Rick Perry on Friday asked the U.S. government to cut "skyrocketing" food prices by waiving half of the renewable fuel standard for ethanol made from grain.

The Republican governor from the oil-producing state said in a statement that such a waiver was "the best, quickest way" to ease rising food costs before lasting damage was done.

"We're diversifying our state's energy portfolio at a rapid rate, but this misguided mandate is significantly affecting Texans' family food bill," he added.

Perry said that over the last three years, the price of corn has shot up 138 percent around the world, while global food prices rose 83 percent.

Perry said the U.S. mandate for oil refiners to blend ethanol with gasoline could push corn prices to $8 a bushel for the 2008 crop -- double last year's price tag. That could cost the Texas economy $3.59 billion, the governor calculated.

A Perry spokeswoman said the $8 per bushel estimate came from a report by Iowa State University economics professor Bruce Babcock. Corn for the May contract closed at $5.77-1/4 a bushel on Friday on the Chicago Board of Trade.

Perry, whose state is the biggest U.S. gasoline producer, said he appreciated the good intentions behind the federal program that aims to boost renewable fuels.

But he added: "The artificial demand for grain-derived ethanol is devastating the livestock industry in Texas and needlessly creating a negative impact on our state's otherwise strong economy while driving up food prices around the world."

Texas farmers buy a lot of corn-based livestock feed. The state is the biggest U.S. beef producer and its farms rank among the top 10 states in poultry, egg and dairy production.

Texas is the first U.S. state to seek such a waiver from the U.S. Environmental Protection Agency, which said it is reviewing the request, as it expects other agencies to do.

The Renewable Fuels Association, which represents big ethanol producers like VeraSun Energy, criticized Perry's request. It blamed rising food prices on skyrocketing oil prices and surging global demand for grains and meat.

Replacing some 4.5 billion gallons of ethanol with gasoline refined from oil, as Perry proposes, "is a surefire way to guarantee even higher gasoline prices," the Washington, D.C.-based group's president Bob Dinneen said in a statement.

Texas said it would be delighted if other states also petitioned the EPA. Virginia Gov. Timothy Kaine rejected the idea on April 15, a Kaine spokesman said.

Kaine, a Democrat, wrote a state legislator who proposed a waiver that the move "will not have a meaningful impact on food prices or crops planting decisions of Virginia farmers."