Bush officials defend ethanol as food prices rise

WASHINGTON (Reuters) - Senior Bush Administration officials reiterated their defense of corn-based ethanol fuel on Tuesday, saying it was one factor in rising food prices but that high energy costs were the main culprit.

Raw corn is shown as it is unloaded for processing at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007. REUTERS/Jason Reed

Ethanol makers will consume about one-quarter of the 13.1-billion-bushel U.S. corn crop this year, according to the Agriculture Department, a forecast that is increasingly alarming world governments and food aid workers.

“Certainly, that is a factor as we are seeing the rising food costs out there,” U.S. Agriculture Secretary Ed Schafer told CNBC. “It’s not the factor, however. Energy is the big issue as we look at those food prices,” he added.

Consumer food prices normally rise by about 2.5 percent annually, but they increased by 4 percent in 2007, the biggest increase in 17 years. And forecasts for 2008 are pointing to a another rise of 3 percent to 4 percent, USDA said in February.

A key goal of the Bush administration has been to boost supplies of renewable fuels to reduce the country’s dependence on foreign energy.

But corn prices are rocketing to record highs, which will raise prices for a variety of products as corn is widely used as feed for livestock. Corn for delivery in May rose 15-1/4 cents to $6.07 a bushel at the Chicago Board of Trade Tuesday.

Asked about the food crisis and how it related to biofuels, U.S. Secretary of State Condoleezza Rice said the two were related but there were a host of other issues involved, such as high transportation costs of food.

“We have an energy and a food problem. There are some relationships between them,” Rice told the House of Representatives Armed Services Committee.

“We also think a significant part of the food problem relates not from biofuels but from simply the costs of energy in terms of fertilizer and in terms of transportation costs for food,” she added.

Food prices have taken on even more importance as oil prices have risen. U.S. crude futures rose sharply to a record high near $114 a barrel on Tuesday at the New York Mercantile Exchange.

Schafer also was asked if he favors releasing more land for farming. About 34.7 million acres are enrolled in the U.S. Conservation Reserve Program. The reserve, the largest U.S. land retirement program, pays landowners an annual rent in exchange for idling environmentally sensitive land.

Schafer said 1 million acres were coming out of program this year and 4.5 million next year, but USDA is not sure if the land is going to be re-enrolled.

“The reality is, if you planted all of that into corn, you might affect the price maybe 20 cents,” said Schafer.

The increased use of grains to produce biofuels along with growing global demand for food has lead to grain shortages, rising prices, bread lines, and food riots around the globe.

Editing by Russell Blinch and Walter Bagley