The worst drought to hit the United States in 50 years is destroying what was once hoped to be a record-breaking corn crop and driving up food prices domestically and across the globe.
More than half of all counties in the U.S. have been designated disaster areas by the USDA, which estimates that corn harvest will drop 13% from 2011 and will result in the lowest average yield since 1995. Such low yields mean that food prices will rise in the coming months, which could spell disaster for low income families in the United States. Many of these families rely on cheap, corn based food products, and for poverty stricken people around the world, they often rely on corn-based food aid for sustenance as well.
One of the prime culprits in the expected spike in food prices is the requirement set by the Renewable Fuel Standard (RFS) that 36 billion gallons of renewable fuel must be blended into transportation fuel by 2022. Currently, this translates into a 9% ethanol blend in gasoline, which requires that about 40% of the total U.S. corn crop be converted. With a reduced corn yield this percentage could rise. which puts pressure on food producers as they compete with ethanol producers for the crop.
Corn Based Food
As corn prices rise as a reflection of the supply, so too do other food prices – notably meat and poultry –– whose producers rely on corn to feed their animals. Decades of low corn prices has fueled a culture of meat eating in America that is built on the back of cheap prices for animal-based protein. The ethanol mandates coupled with the reduced supply of corn put meat producers and ethanol producers in direct competition.
Agrifood giants, Cargill and ADM, have seen their profits tumble with the drought and the induced price rise of corn. These companies manufacture some of the staples of American food. High fructose corn syrup, the sweetener du jour of manufactured food, and is one of their main products.
As ranchers and food manufacturers see their costs increase, the consumer will see a corresponding increase in costs on the grocery aisles. Although there have been no official projections of the price increase, the USDA has estimated that we will begin to see effects within two to three months, beginning with the retail prices of beef, pork, poultry and dairy products. It will likely take 10-12 months for significant changes to be seen in packaged and processed food prices. . Significantly, the sweet corn consumable by humans will not significantly affected by the drought.
Calls for an Ethanol Waiver
There has recently been a number of calls for the federal government to temporarily waive the RFS biofuel mandates as a way to manage the food price fallout from the drought. A diverse group, including the UN, a bipartisan group of U.S. senators, the American Meat Institute, and food industry leaders are calling on the federal government to ease the requirements to buffer the expected price spike. The thinking is that preserving the corn crop for human and livestock consumption will help to stabilize the drought threatened supply. Additionally, the UN and other organizations have urged governments not to limit food exports or engage in panic buying to shore up stockpiles of commodity foods. These kinds of behaviors worsened the 2008 spike in food prices, prompting riots around the world in places such as Haiti and Egypt.