In a study released today, Omaha-based Advanced Economic Solutions is forecasting a return of food price inflation over the next five years as a result of increased global demand for food including, most notably, a sharp increase in the use of corn for ethanol production.



"Bill Lapp, principal, Advanced Economic Solutions (AES), said the long period of low food price inflation rates prior to 2007 has passed. He noted that the price of commodities such as corn, wheat, soyoil and milk, have already begun to permanently move to a new plateau. The increases mean food manufacturers, grocery stores, and restaurants, will be passing those higher costs on to consumers, likely resulting in annual consumer food price inflation of 7.5 percent during 2008-12. This represents a sharp departure from largely benign food price inflation over the last 25 years.



"Global economic growth has increased demand for grains and oilseeds, while the sharp decline in the value of the U.S. dollar has been supportive to commodity prices in general. However, the primary catalyst for the rise in the price of corn (as well as other food inputs) has been ethanol production. The AES study points out that corn used for ethanol in the U.S. has doubled during the past two years, and now accounts for 25 percent of total corn utilization. The surge in the use of corn to produce fuel led to a 20 percent increase in the number of corn acres in 2007 and created what is likely an on-going "acreage battle" in the coming years. This environment has led to reduced stocks of all grains and, consequently, not only higher but much more volatile prices."