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USDA Head Downplays Calls To Cut Biofuel Mandate

Christopher Doering

WASHINGTON - Agriculture Secretary Ed Schafer said ethanol is not having a "major" impact on food prices, and downplayed calls by lawmakers and industry groups to make changes to programs that promote increased use of biofuels.0520 07 1

Prices for wheat, corn, soybeans and rice have set record highs at the Chicago Board of Trade this year. Around the world, rising food prices have lead to hoarding of wheat and rice, bread lines and food riots.

It has prompted demands from some to pull back the throttle on the boom in ethanol and other biofuels, touted as a home-grown way to reduce U.S. reliance on foreign energy.

In Congress, two dozen Republican senators have pushed to revisit a mandate passed last December that calls for a fivefold increase in biofuels output by 2022.

Schafer told reporters that demand for biofuels is having an impact on food prices, "but it is not a major factor."

He said there would be few benefits from changing the renewable fuels standard, reducing the tax credit for producing ethanol as proposed in the farm bill or ending the ethanol import tariff.

"The change in the renewable fuel standard, the change in tariff or duty isn't going to affect food prices," said Schafer. "We need to focus on things that will actually have an effect instead of a short-term political solution."

The Grocery Manufacturers Association, echoing concern in the food industry and from aid groups, earlier this month blasted the growing use of corn to make fuel that is driving up the cost of virtually all commodities.

"It's clear that American families are facing unbearable pressure -- pressure that Congress can help relieve by revisiting and revising the mandated diversion of corn to ethanol production," said GMA spokesman Scott Faber in a statement.

The Bush administration estimated 3 percent of the more than 40 percent increase in world food prices last year is due to demand for corn for ethanol use. Early this month, USDA estimated about a third of this year's projected 12.1 billion-bushel corn crop will go toward ethanol production in 2008/09, up from about 25 percent in 2007.

Farm and biofuel groups and USDA say factors other than ethanol are primarily to blame for higher food costs, including high oil prices, increased global food demand and a drop in grain production because of drought in parts of the world.

"The policy choices we have made on biofuels will deliver long-term benefits, but we also have to recognize that there may be some short-term costs or dislocations involved," said Schafer.

USDA chief economist Joe Glauber said food prices would rise by 5 percent this year, the highest rate since 5.8 percent in 1990, as retailers pass higher energy and commodity prices to consumers.

Food prices usually rise by modest amounts, roughly 2.5 percent and below the overall U.S. inflation rate. Prices rose by 4 percent in 2007.

Reporting by Christopher Doering; Editing by Marguerita Choy

© 2008 Reuters

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