The Relative Impact of Corn and Energy Prices in the Grocery Aisle

By John M. Urbanchuk Director, LECG LLC
June 11, 2007


Retail food prices measured by the Consumer Price Index (CPI) for food have begun to accelerate and are beginning to approach rates of increase last seen in mid-2004. Critics of renewable fuels are blaming the recent increases on high prices for corn caused by increasing ethanol production. They fail to point out that corn prices are only one of many factors that determine the CPI for food, and in fact, directly affect a small share of retail food prices. Increases in energy prices for example exert a greater impact on food prices than does the price of corn. A 33 percent increase in crude oil prices – which translates into a $1.00 per gallon increase in the price of conventional regular gasoline – results in a 0.6 percent to 0.9 percent increase in the CPI for food while an equivalent increase in corn prices ($1.00 per bushel) would cause the CPI for food to increase only 0.3 percent. The purpose of this study is to examine and compare the impact on consumer food prices resulting from increases in petroleum and corn prices.

To view the entire study click here. http://www.ncga.com/news/notd/pdfs/061407_EthanolAndFoodPrices.pdf