Myths and Realities Behind Rising Food Prices

	Anyone who buys groceries or eats in a restaurant knows that food prices have increased, but few people truly understand the global factors that are driving the present situation. There are those who point the finger at the cost of agricultural products, and some would even have you believe that the use of farm products to produce biofuels is depriving people of food. However, a closer look at the facts shows otherwise, and false claims can be strongly disputed by well-informed people. All things considered, the demand for biofuels has played a relatively small role in rising food prices. According to U.S. Department of Agriculture, Economic Research Service, the primary reasons underlying the escalation in food prices are an explosion in energy costs driven largely by the price of petroleum, the surging demand for food and livestock feed from a growing and increasingly prosperous middle class in countries like China and India, drought and other weather patterns that reduced yields in numerous regions of the world, the declining value of the U.S. dollar, and export restrictions imposed by some countries. Higher energy prices have greatly added to the costs of transporting, processing, manufacturing, storing and distributing the food we eat. Higher energy prices also have dramatically increased the prices U.S. farmers are paying for the inputs they need to plant, grow and harvest their crops. Compared to just two years ago, farmers today are paying twice as much for the diesel fuel they need to run their tractors, combines and grain trucks. Fertilizer, which requires a great deal of energy to produce, has quadrupled in price. Biofuels, such as ethanol from corn and biodiesel from soybeans, are making a contribution to the world’s fuel supply, which is holding gasoline and diesel prices lower at the pump for consumers. According to International Energy Agency data, global biofuels production has cut consumption of crude oil by 1 million barrels a day, offering savings of $120 million dollars a day. That’s more than $43 billion in savings per year. And while these homegrown, renewable fuels are helping to reduce dependence on imported petroleum, the demand for biofuels is contributing to commodity prices well above government support levels, strengthening rural economies by creating jobs, and improving air quality in our cities. For more than 40 years, the United States has known that it needs to reduce its energy consumption and find alternative energy sources. Reducing the nation’s reliance on foreign petroleum is an urgent national security priority, and an opportunity for the development of innovative energy solutions. The use of biodiesel and other biofuels is only the beginning.

The key point to understand about the relationship between soybeans and biodiesel production is that as the demand for soy biodiesel increases, the amount of soy protein available will also increase. An easy way to think about this is that for every 1.5 gallons of biodiesel produced, there will be more than four times as many pounds of protein rich soybean meal available for animal and human consumption.

In the U.S. and other countries, soybean meal is primarily used for poultry and livestock feed. Thus, the price of soybean meal has an indirect impact on the price consumers pay for chicken, eggs and pork, and to a lesser degree, the cost of milk, beef, fish, and pet food. Asian countries traditionally consume a higher percentage of soy protein directly in human foods such as tofu.

Compared to the previous five year average of 39.9 million tons, soybean meal production in the U.S. hit an all time record in 2007 at 43.8 million tons. Approximately 7.3 million tons of U.S. soybean meal was exported, which is nearly 5 percent more than the U.S. exported in 2006.

Soybean oil production in the U.S. also hit an all time record in 2007 at 21.2 billion pounds. This compares to the previous five year average of 19.2 billion pounds. Approximately 1.4 billion pounds of U.S. soybean oil was exported in 2007, which was double the amount of soybean oil the U.S. exported in 2006. More than half of this increase was purchased by China, a country that had previously bought virtually no U.S. soybean oil.

Domestic utilization of U.S. soybean oil in 2007, was 16.1 billion pounds for edible consumption (cooking oil, salad oil, margarine, etc.) and 3.6 billion pounds for industrial use (adhesives, lubricants, solvents, etc., and biodiesel).

1 bushel of soybeans produces 1.5 gallons of biodiesel and 48 pounds of protein-rich soybean meal.

According to the National Biodiesel Board, the total amount of biodiesel produced in the U.S. in 2007 was 500 million gallons (the equivalent of 3.4 billion pounds), but this amount included feedstocks other than U.S. soybean oil, including, for example, canola oil, animal fat, and recycled cooking oil, and imported soy and palm oils. It is estimated that about 80 percent of biodiesel produced in the U.S. in 2007 was made from soybean oil.

Glycerol, also known as glycerine, is a by-product of biodiesel production that could provide livestock producers with a readily available, inexpensive and energy-packed feed ingredient. Researchers at USDA’s Agricultural Research Service and Iowa State University studied the use of crude glycerol to supplement the feed of laying hens, broilers and swine, and found that crude glycerol provides a supply of caloric energy that equaled or exceeded the caloric energy available in corn grain.

Because one pound of glycerol is produced for approximately every 10 pounds of biodiesel produced, the 500 million gallon U.S. biodiesel industry also produced 376 million pounds of glycerol in 2007 that could be used by the livestock industry. As soy biodiesel production increases, more soybean meal and more glycerol will be available for use by livestock producers.

*End of Year Stocks of soybean oil have more than doubled since the U.S. Biodiesel Tax Incentive was implemented in 2004.*	Facts about Soybean Oil Consumption and Availability
	U.S. soybean oil use for biodiesel production is not causing food shortages. Only 5 percent of total world soybean oil production was used for U.S. biodiesel production in 2007. Ending stocks (i.e., stocks remaining after all food, feed, fuel, and other industrial uses have been met) of soybean oil actually have increased significantly in recent years. The U.S. soybean oil used by the biodiesel industry has basically offset the amount lost in food uses due to trans fat labeling requirements implemented by the U.S. Food and Drug Administration (FDA) beginning in 2006.
Traditionally, soybean oil had accounted for about 80 percent of all the edible fats and oils consumed in the U.S. However, due to trans fat labeling requirements, manufacturers and food service providers replaced partially hydrogenated soybean oil (primarily used in baked goods and frying operations) with other fats and oils. As a result, soybean oil’s share of total edible fats and oils dropped precipitously leading up to and after the trans fat labeling implementation date to the current level of about 70 percent market share. Fortunately, this drop in edible soybean oil consumption occurred at the same time as the young U.S. biodiesel industry was ramping up production. Over the past three years, the cumulative 10 percent drop due to the trans fat labeling requirement displaced more than 4.6 billion pounds of edible soybean oil, which was utilized to produce more than 600 million gallons of biodiesel. While soybean oil use for biodiesel has offset edible soybean oil demand lost as a result of trans fat labeling, ending stocks of soybean oil have more than doubled since 2004 when the biodiesel tax incentive first was implemented. End of year stocks have climbed from a little less than one month of total (edible and industrial) U.S. soybean oil usage in 2004, to almost two months of use today.
*Domestic Consumer Food Price Compared to the Overall CPI, 1970 to 2007. The USDA says the current up-tick in food price inflation was much lower than it was in the 1970s and early 1980s.*	Facts about U.S. Farm and Food Prices
	According to the U.S. Department of Agriculture (USDA), Economic Research Service (ERS) the Consumer Price Index (CPI) for food in the United States increased by 2.4 percent in 2005; by 2.4 percent in 2006; and by 4.0 percent in 2007. The CPI for all food is forecast to increase 4.5 to 5.5 percent in 2008. Cereals and bakery products account for 7.4 percent of all food cost. Fats and oils (such as soybean oil that is used for both food and to make biodiesel) account for only 1.5 percent of all food cost. While the cost of food has gone up, the commodity ingredients or farm-value share of food accounts for only a minor part of the overall food dollar expenditure. Overall, the farm value share of expenditures is only 19 percent. For cereals and bakery products, the cost of commodities accounts for only about 6 percent of retail cost. For fats and oils, the cost of commodities accounts for a larger share at around 17 percent of retail costs. The other major costs are labor, transportation and marketing.
*ERS Price Spread from Farm to Customer 1950 to 2004. According to the latest available USDA data, the farm value share of food expenditures in 2004 was less than half of what it was in 1950.*	U.S. producers indicated in March they intend to plant 74.8 million acres to soybeans in 2008, up 18 percent from last year. If these intentions are realized, soybean supplies for 2008/09 will increase as larger production more than offsets sharply lower beginning stocks. According to USDA’s Chief Economist, futures market prices suggest that grain and oilseed prices will remain high over the next few years. Strong foreign demand, high input costs, and the rapid expansion of biofuel production will continue to play a major driving force in U.S. and world agriculture. Yield growth and supply response both in the U.S. and abroad will help moderate crop prices in the long run, but for the near term, tight supplies will keep markets volatile with much attention paid to growing conditions worldwide.
	Renewable Energy Benefits of Biodiesel
	U.S. farmers are helping to address the country’s renewable energy needs by growing soybeans that can be processed into biodiesel. Biodiesel adds to critical U.S. refining capacity, directly replaces imported fuel and extends the diesel supply. Domestically produced biodiesel increases demand for U.S. farm products, creates jobs and stimulates rural economies. Continuing the development of a viable U.S. biodiesel industry is a critical component of our national energy security and clean energy goals. Biodiesel is a clean-burning alternative to petroleum-based diesel.

Biodiesel has one of the best energy and environmental profiles of any alternative fuel. A U.S. Department of Energy and U.S. Department of Agriculture full lifecycle emissions study found that for every unit of fossil energy needed to make biodiesel, 3.5 units of energy are gained. In contrast, it takes 1.2 units of fossil resources to produce 1 unit of petroleum diesel. Biodiesel offers similar fuel economy, horsepower and torque to petroleum diesel while providing superior lubricity.

Biodiesel blends can be used in most diesel engines with little modification. Because it has similar properties to petroleum diesel fuel, biodiesel can be blended in any ratio with petroleum diesel fuel, and is most often blended at the 20 percent level (B20). Today, most B20 is used by government motor fleets, urban bus fleets and school buses. In addition, biodiesel has been used in farm equipment, marine engines and furnaces as a replacement for heating oil. The trucking industry is also using biodiesel, and biodiesel is being offered at an increasing number of truck stops.

U.S. Environmental Protection Agency (EPA) regulations require the removal of sulfur in diesel fuel; however, the process of removing sulfur from diesel decreases the fuel’s lubricity. Biodiesel is a natural choice for restoring the lubricating properties of low sulfur diesel fuel necessary to prevent premature wear and tear on the engine. Tests performed by Stanadyne Automotive Corp., one of the top diesel fuel injection equipment manufacturers, show blending just one percent biodiesel into petroleum diesel can increase lubricity by up to 65 percent.

Environmental and Health Benefits of Biodiesel
Biodiesel contributes to cleaner air and lifecycle reductions of greenhouse gases. Biodiesel is an environmentally safe fuel, and is the most viable transportation fuel when measuring its carbon footprint, lifecycle and energy balance. Biodiesel is the first and only alternative fuel to have a complete evaluation of emission results and potential health effects submitted to the U.S. Environmental Protection Agency (EPA) under the Clean Air Act Section 211(b). These programs include the most stringent emissions testing protocols ever required by EPA for certification of fuels or fuel additives. The data gathered complete the most thorough inventory of the environmental and human health effects attributes that current technology will allow. Biodiesel reduces engine emissions, and it is nontoxic, biodegradable and essentially free of sulfur and aromatics. It significantly reduces emissions of carbon monoxide, particulate matter, unburned hydrocarbons and sulfates. On a lifecycle basis, biodiesel reduces carbon dioxide by 78 percent compared to petroleum diesel. One billion gallons of biodiesel will reduce current lifecycle greenhouse gas emissions by over 16 billion pounds, the equivalent of removing 1.4 million passenger vehicles from U.S. roads. In 2007 alone, biodiesel’s contribution to reducing greenhouse gas emissions was equal to removing nearly 700,000 passenger vehicles from America’s roadways. Biodiesel blends help improve human health and reduce chronic disease. Particulate matter is reduced with biodiesel blends, thereby lowering air pollution and reducing illnesses and death caused by asthma, lung cancer, and other respiratory diseases.
	Continued Biofuels Investments are Essential
	To continue biodiesel’s role in helping increase fuel supplies and achieve energy independence, the American Soybean Association supports the long-term extension of the Biodiesel Tax Incentive and the Small Agri-biodiesel Producer Credit beyond 2008. The Biodiesel Tax Incentive was first enacted in 2004, and was extended through the end of 2008. It provides $1.00 per gallon for biodiesel produced from virgin oils and $0.50 for biodiesel from second use oils (yellow grease). It is currently a blender’s tax credit, triggering when biodiesel is blended with diesel fuel.

World Hunger and Food Aid

The American Soybean Association (ASA) and U.S. soybean farmers share the world’s commitment to combat world hunger and improve the health of children. ASA is working to advance solutions that will improve the quality of life for all people through the development of resources that can provide clean renewable energy while continuing to produce ample, safe and affordable supplies of food and feed.

ASA has supported Public Law 480, later renamed the “Food for Peace” program, since its inception in 1954. For more than 50 years, this program has brought hope and nourishment to the hungry corners of the world. Approximately 3 billion people in 150 countries have benefited directly from 106 million metric tons of U.S. food. More than 60 percent of international emergency food aid comes from the people of the United States.

Food for Peace is the work of farmers, businessmen, grain elevator operators, truckers, bargemen, freight forwarders, port operations, non-government and private voluntary organizations, and government officials to form an unbroken chain of humanity stretching from the fertile fields of the U.S. to hungry families half a world away.

U.S. soybean farmers also are investing their own dollars to supply the world’s poor with protein-enriched diets through ASA’s World Initiative for Soy in Human Health (WISHH) program, and its charitable arm, the World Soy Foundation (WSF).

WISHH and WSF promote the use of U.S. soy protein products in developing countries where deficiency of protein in human diets is acknowledged to be a serious problem. Activities range from developing higher-protein breads that are suitable for Afghanistan relief efforts, to identifying new uses for soy-fortified noodles in Indonesian school lunches. In addition, WISHH and WSF are demonstrating the role of soy-based foods in providing essential nutrition to the millions of people affected by HIV/AIDS and much more.

Soy flour provides a nutritional boost to breads, tortillas or other staple foods. Texturized soy flour can stretch ground meat servings while maintaining much needed protein; in some cases, it may be the only affordable protein available to individuals or institutions feeding hungry people. Uses for soy protein isolates range from nutritional beverages to soups, sauces and spreads. Soy milk replacers can play a valuable role in feeding the many lactose-intolerant people in developing countries.

Soybeans have the
ability to capture
nitrogen from the
air with assistance from
bacteria that live in
nodules on their roots.
This provides a natural and
sustainable fertilizer for
the soybean plant and
for rotational crops
that follow.

Biotechnology and Sustainable Agriculture

To meet the world’s growing demand for food, feed and fuel, productivity must be increased on existing land in a sustainable manner.

Modern crop biotechnology has already contributed greatly to the sustainability of U.S. soybean production. Biotech-enhanced varieties of herbicide tolerant soybean seeds were first commercialized more than a decade ago. Herbicide tolerant seeds have become a standard in U.S. farmer management systems to control weeds that compete with crops for light, water and nutrients.

The technology provides farmers with an unprecedented weed management tool, which has led to increased conservation tillage practices that sequester carbon, reduce production costs, lower fuel consumption, reduce run-off, improve water quality and save irreplaceable top soil.

Technology will also play a role in expanding the world’s supply of food, feed and renewable fuels. Yield increases facilitated by biotechnology and other modern plant breeding methods are accelerating yield increases in soybeans while improving the sustainability of U.S. soybean production.

Over the last 20 years, U.S. soybean yields have been edging slowly upward at the average rate of about 1.7 percent per year. Through the use of biotechnology and other modern plant breeding methods, new soybean varieties are targeted for commercialization over the next few years that will boost soybean yields by about 10 percent when they are introduced.

Research also is progressing to develop high yield soybeans (i.e., soybeans generating a further 10 percent or more increase in yield), as well as soybeans with higher oil content. A 10 percent yield increase above USDA’s 2008 projected U.S. production level of soybeans will increase soybean oil supplies by over 3.4 billion pounds, and soybean meal supplies by 7.4 million tons.

Each 10 percent jump in soybean yields is equivalent to providing both the U.S. food and livestock industries with an extra two and half months of soybean oil and soybean meal supplies. Conversely, if all the additional soybean oil generated through a 10 percent yield increase is used for biodiesel production, the livestock industry still will receive the extra two and half months of protein meal supply (since only the oil portion of the soybean is used to make biodiesel), and the U.S. will have enough soybean oil to make an additional 280 million gallons of biodiesel.

	The Relationship between Soybeans and Biodiesel
	When processed, a 60 pound bushel of soybeans yields approximately 48 pounds of protein rich soybean meal (80 percent) and 11 pounds of crude soybean oil (18 percent). All commodity soybeans are processed using the same basic crushing and extracting methods regardless of how the soybean meal and soybean oil will ultimately be used. Only the soybean oil is used for biodiesel production.