US ethanol plan causing food prices to surge: bank

OTTAWA, Oct 22, 2007 (AFP) – Attempts to reduce US dependence on imported oil by adding more ethanol to its gas tanks are only driving up food prices while delivering moot energy benefits, a Canadian bank warned on Monday. Corn prices have already jumped by 60 percent over the past two years as American ethanol producers expanded capacity, said Jeff Rubin, chief economist at CIBC World Markets.

In 2008, food inflation would top five percent and the following year would approach seven percent, its highest level in more than 25 years, he said.

“This diversion of an ever-increasing share of the American corn crop from human consumption and livestock feed to energy production is putting steady and unrelenting pressure on food prices,” Rubin said in a statement.

“Soaring corn prices not only pass directly into animal feed costs and corn-based food prices like tortillas, but they are spilling over to other grain prices as farmers scramble to expand corn production at the expense of other crops,” he said.

Ethanol is used as an additive to gasoline, comprising as much as 10 percent of the fuel mixture in most automobiles. Ninety-five percent of the ethanol produced in the United States is distilled from corn.
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