Ethanol adds 0.5-0.8 points to U.S. food prices

WASHINGTON (Reuters) - The boom in corn-based ethanol as motor fuel added from 0.5-0.8 percentage points to U.S. food prices when they were climbing at double the usual rate, said the Congressional Budget Office on Wednesday.

In a report, CBO said larger use of ethanol drove up feed prices for cattle, hogs and poultry and, in turn, resulted in higher retail prices for food.

CBO said the increased use of ethanol accounted for 10 percent-15 percent of the rise in food prices in the year ending in April 2008, or 0.5-0.8 points of the 5.1 percent increase in food prices that was registered.....

“Over the same period, certain other factors -- for example, higher energy costs -- had a greater effect on food prices than did the use of ethanol as a motor fuel,” said the report.

Food prices rose by 5.5 percent during 2008, the highest annual increase since 1990 and double the rate seen earlier this decade, said the Agriculture Department. It forecasts an increase of 3.5 percent this year.

Americans spend more than $1.1 trillion on food annually.

Federal spending on public nutrition programs including food stamps and school lunch will be $600 million-$900 million higher this fiscal year due to ethanol, said CBO. Higher food prices will add $5 billion to the overall cost of the programs.

“Beyond the one-year period that ended in April 2008, food prices are likely to be higher than they would have been if the United States did not use ethanol as a motor fuel,” said CBO but it is difficult to gauge by how much.

Ethanol distillers produced 9 billion gallons 34 billion liters of the biofuel in 2008. The federal target for ethanol use this year is 10.5 billion gallons.

U.S. gasoline usage was down by 4 percent last year because of ethanol, said CBO. It said emissions of greenhouse gases by the transportation sector were down by less than 1 percent, equal to 14 million tons of carbon dioxide, based on research saying ethanol has a 20 percent savings over gasoline in greenhouse gases.

“In the long run, the result in less clear,” said CBO. If large amounts of forest and grass land is converted to cropland, greenhouse gas emissions overall could rise. But biofuels made from grasses, wood and crop residue “might reduce greenhouse gas emissions more substantially.”

Reporting by Charles Abbott; Editing by David Gregorio