New York, May 2 - Makers of household staples like cheese and cereal are lobbying in Washington in an active effort to reshape government policy on ethanol as they grapple with soaring costs for agricultural commodities like corn.
Filings with the Senate's Office of Public Records reveal that several large packaged-food companies have hired Washington lobbyists or are using their internal teams to help them make a stronger case against the use of corn to produce biofuels like ethanol.
A March lobbying registration form shows that Kraft Foods Inc. (KFT) has hired Washington D.C. firm DLA Piper to lobby on "energy policy and initiatives related to biofuels." An April lobbying report filed by Kellogg Co. (K) discloses that the company has been lobbying on the subject of "ethanol production", among others.
Earlier this week Kraft - which makes its namesake cheese singles, Philadelphia cream cheese and Oscar Mayer meats - posted a 13% drop in first-quarter net income amid surging costs for dairy, wheat and other commodities. Kellogg posted a 1.9% drop in first-quarter net income as price hikes didn't completely offset the surging costs for ingredients and a higher tax rate.
Food companies' profits are being nicked by a variety of commodities, not just corn. But their willingness to take on an active role in the ethanol debate highlights just how big an issue commodity prices have become to the packaged-food makers.
"The food and feed people are beginning to realize what it means to have subsidies and tax breaks for the ethanol plants. They weren't alert to this particular issue," says James Thurber, a professor of political science who teaches a course on public advocacy at American University in Washington, D.C. "They now are entering a period of active lobbying against the corn-based ethanol people."
Corn futures were up 61% for the 52 weeks ending April. Packaged-food makers tend to use corn or related products in their manufacturing. They say the diversion of the grain to produce ethanol is pushing up corn prices, making it more expensive for them to produce their food, and consequently translating into more food inflation for consumers. Critics of government efforts to boost ethanol production contend that diverting corn for fuel is making cattle feed prices more expensive and is acting as one factor in the hike in milk and meat prices.
Kraft's Chief Executive Irene Rosenfeld has been in Washington in recent weeks to talk to key decision makers on the diversion of corn for biofuels. "This was a policy that was well intentioned but has had some unintended consequences that have exacerbated commodity increases in certain parts of the world causing people to go hungry," she told Dow Jones Newswires. Kraft's cheese business has been hurt by higher milk prices.
The efforts come at a time when soaring food prices have caused riots in parts of the globe. Large corporations are rarely seen as crusaders for the poor in emerging countries. But politics - and economics - make for strange bedfellows. In recent weeks policy makers from developing countries have criticized the U.S. government's push for corn-based ethanol.
Scott Faber, vice president for federal affairs at the Grocery Manufacturers Association, says the organization isn't opposed to all biofuels, but is concerned by the diversion of corn to produce fuel. The association - which is the main advocacy group for the food, beverage and consumer products industries - contends that policy makers need to accelerate the development of advanced biofuels made from feedstocks that people don't eat like crop waste, or grasses. Faber says his group has been asking Congress and the Bush administration to reconsider recent mandates that were intended to propel greater ethanol usage by 2015.
The chief executive of Tyson Foods Inc. (TSN) - which, according to Senate records, has also lobbied on the subject of alternative fuels - recently hit out against ethanol subsidies during a conference call. Coca-Cola Co. (KO) - whose beverages use high fructose corn syrup - also lists biofuels as one of its lobbying issues in a Senate report. A Coke spokesman said via email the company believes that "some of the well-intentioned mandates and subsidies raise food and commodity prices by diverting too much of crops such as corn to non-food uses."
One Washington lobbyist who has worked for the ethanol lobby in previous years, but asked not to be named, said food companies appear to have scaled up their lobbying in the last year or year and half. The ethanol group, on the other hand, has been lobbying for years, that lobbyist said.
Corn Growers Answer Critics
The lobbying by packaged-food companies is meeting resistance from another set of companies that have the most to lose from a backlash on corn based ethanol. They argue that food inflation is being driven by other factors like higher oil prices and growing demand for protein from emerging countries like China, and say that biofuels are being unfairly used as a scapegoat.
"Food prices are being driven, as we know, by record energy costs," said Patricia Woertz, chief executive of Archer Daniels Midland Co. (ADM), which produces corn-based ethanol, during a recent conference call.
Jon Doggett, vice president of public policy at National Corn Growers Association, argues that the emphasis on ethanol has revitalized rural communities where ethanol plants are located, and that consumers would be facing even higher prices at the pump if it wasn't for the use of ethanol. A big part of the rise in corn futures is due to interest from speculative investors in commodities, he said.
To be sure, despite the surge in commodities packaged-food makers have been able to pass on many of their costs to consumers. This week both Kraft and Kellogg reported profits that exceeded expectations.
Even critics of corn-based ethanol agree there are a confluence of other factors - many of them hard to control such s demand from emerging markets - are big contributors to the surge in agricultural commodities.