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Ethanol production saving consumers money

Apr 25, 2008 10:13 AM

High gasoline prices are hurting Americans’ pocketbooks, but farmers are helping them. Fuel could cost as much as 10 cents more a gallon if it were not routinely blended with ethanol, according to Terry Francl, senior economist for the American Farm Bureau Federation.

In fact, Francl said, U.S. consumers save up to $14 billion in gasoline costs as a result of increased ethanol use.

“In this day when consumers are monitoring gasoline prices in order to find the best deal, it’s good news that we are benefiting from the use of ethanol as both an oxygenate replacement and a gasoline substitute,” said Tony Banks, a commodity and marketing specialist for the Virginia Farm Bureau Federation.

Corn producers are benefiting from the increased use of ethanol as well. U.S. farmers have seen corn prices rise from $2 per bushel to more than $5.50 per bushel due in part to ethanol. But while corn prices have risen, “corn producers’ production costs for expenses like fertilizer and fuel have doubled, gobbling up most of any added income from the higher crop price,” Banks said.

The U.S. ethanol industry produced 32 percent more of the corn-based fuel in 2007 than in 2006, according to the U.S. Energy Department’s Energy Information Administration. And capacity for ethanol production is expected to grow another 4 billion gallons this year, according to the Renewable Fuels Association.

Some naysayers are blaming higher food prices on ethanol production, but Francl said the overall gains to the economy from ethanol “will more than offset any incremental food price increases with the production of biofuels.”

While ethanol demand “has had a role in higher prices for certain foods like meat and dairy,” Banks noted, “it’s not that simple. There are several complex factors at play with both grain and food prices.”

Among the major factors influencing prices of key U.S. crops and foods are investors’ growing interest in commodity-focused funds; rising world demand, particularly in China and India, where middle-class populations are expanding; years of declining stocks of essential crops; and the declining value of the U.S. dollar.

“And let’s not forget record-setting oil prices, which affect every single item at the grocery store or fuel pump,” Banks added.

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