New York, June 28 - The leading U.S. ethanol lobbying group said Thursday that surging demand for corn-based renewable fuels is not to blame for a recent spike in milk and other dairy prices.
The comments come as the U.S. food industry points the finger at ethanol as the main reason behind higher grocery bills, with rising corn demand pushing up the cost of cattle feed and grains.
"While ethanol seems to be a convenient scapegoat, blaming ethanol for raising food prices just doesn't tell the whole story," said Matt Hartwig, a spokesperson for the Renewable Fuels Association.
U.S. milk futures prices on the Chicago Mercantile Exchange soared to an all-time high last week amid strong global demand for dairy products and higher production costs, and some milk producers said a gallon at the store could hit $4 soon.
RFA's Hartwig said that strong demand and higher energy costs are the main factors behind rising prices for milk and other foods, not ethanol.
"Oil is used in every process of food production... so it just stands to reason that food prices would follow," Hartwig said.
Corn prices have climbed around 45 percent during the past year, in part due to higher demand from new ethanol plants to feed a surge in use of biofuels.
The administration of U.S. President George W. Bush is seeking to bolster the use of renewable fuels like ethanol and biodiesel to cut dependence on the Middle East.
But the policy has taken some flak.
The Grocery Manufacturers/Food Products Association, a trade group representing the food, beverage and consumer products industry, said earlier this year that U.S. consumers will see higher grocery bills because of the ethanol boom.
And a study from Iowa State University released last month said that the ethanol trend has already raised grocery bills about $47 per person since last July.
"We are going to end up paying more for food domestically because we have an ethanol policy that is basically tying the price of corn and feed and the resulting food to the price of imported oil," said J. Patrick Boyle, chief executive of the American Meat Institute, one of the organizations which helped fund the study.
Milk producers said they're being affected as well.
"The cost of making milk is significantly higher than it was last year due to a variety of factors, one of them being corn," said Christopher Galen, a spokesperson for the National Milk Producers Federation.
Average retail prices for a gallon of milk rose 6 percent from May 2006 to May 2007, from $3.07 to $3.26 a gallon, said Scott Brown, a dairy economist at the University of Missouri's Food and Agricultural Policy Research Institute.
Record levels of international demand for milk products, especially a growing market for dairy in Asia, coupled with stagnating production, have masked the impact of higher corn prices so far, Brown said.
But that will change soon, said Brown, who predicts that consumers may be paying record prices of more than $4 per gallon of milk in the next two to three months as higher production costs trickle down to consumers.