Several factors play into rising food costs

WASHINGTON -- Increased production of corn-based ethanol has raised U.S. food prices this year but not nearly as much as high oil prices and weather problems, the head of the Agriculture Department said Tuesday.

Acting USDA Secretary Chuck Conner said "clearly ethanol demand is having some impact" on food price inflation, but the fuel is getting too much of the blame "for what's happening in grocery store aisles."

Heightened ethanol production is a cornerstone of President Bush's energy policy and farmers increased the amount of corn they planted to feed the fuel frenzy. But more ethanol also helped drive up the prices of livestock feed and other corn-dependent food products.

Food prices have increased about 2.7 percent in each of the last three years. But a jump of between 3.5 percent and 4.5 percent is expected this year before retreating a bit to between 3 percent and 4 percent in 2008, Conner said at a conference hosted by the Renewable Fuels Association, which represents the U.S. ethanol industry.

Global weather conditions, including droughts in Australia, as well as rising demand in China and elsewhere drove up wheat prices.

In addition, the recent record highs for retail oil prices also add to inflation by increasing the costs of everything from packaging to transportation, Conner said. He did not specify how much each factor contributed to rising U.S. food prices.

Ethanol producers, meanwhile, have taken a hit to their bottom lines in recent months because corn prices remain high, while the price of ethanol has slid by 30 percent due to a supply glut.

Meanwhile, the government expects U.S. farmers will produce a record 13.3 billion bushels of corn this year, with about 25 percent used for ethanol. But the number of bushels used for livestock feed also will rise slightly to 5.8 billion bushels, Conner said.