Food Lobbying Group to Ask EPA to Trim Ethanol Mandate

The main lobbying group for food producers plans to ask the U.S. Environmental Protection Agency to reduce requirements for the use of corn-based ethanol in gasoline as a drought boosts the grain’s price to records.

The Grocery Manufacturers Association, which represents Kraft Foods Inc. (KFT) and Kellogg Co. (K), today will ask the EPA to reduce the requirement for how much of the biofuel must be sold this year, said Louis Finkel, the Washington-based group’s executive vice president of government affairs.

Kellogg and Kraft, which use corn in sweeteners, are facing increased costs amid a more than 60 percent surge in the grain’s price since mid-June because drought has damaged crops in the U.S. Midwest growing region. The group argues that using 40 percent of the nation’s corn crop in ethanol exacerbates those gains and will hurt consumers by raising food prices.

“The issue with ethanol has been around for a number of years,” Kraft Chief Executive Officer Irene Rosenfeld said in a phone interview last week. “It has definitely been wreaking havoc with corn prices. I would like to see an ethanol policy that is better aligned with the realities of the market.”

Kraft, the Northfield, Illinois-based maker of Oreo cookies and Velveeta cheese, said Aug. 2 that it raised prices to help recoup higher costs.

Lowering the mandate won’t reduce corn prices, said Matt Hartwig, chief of staff for the Renewable Fuels Association, the Washington-based group that lobbies on behalf of ethanol producers.

Lower Production

Lower fuel sales and accumulated credits from overproduction in previous years, means ethanol refiners may sell 10.5 billion gallons of the fuel this year instead of the mandated 13.2 billion gallons, Hartwig said.

“The waiver will not make it rain,” Hartwig said in an interview. “It won’t bring down corn prices.”

The first mandate that a certain amount of ethanol be sold was enacted in 2005 and then increased in 2007.

Corn prices more than doubled from June 2007 through the same month the following year to a then-record $7.9925 a bushel for the most-active futures on the Chicago Board of Trade. The price dropped below $5 by the end of the year. Corn surpassed $5 in 2010 and has stayed above that price ever since. The most active futures reached a record $8.49 today.

“It could go to $12 a bushel in October,” Finkel said in a telephone interview. “The ethanol mandate has significantly increased corn prices and it has created price volatility. We want to ensure that the larger portion of corn goes to food and feedstock.”

Kellogg Costs

Kellogg CEO John Bryant said the Battle Creek, Michigan- based maker of Corn Flakes raised cereal prices 13 cents a pound in the second quarter to recoup rising grain costs.

“We did see an impact from corn,” Bryant said in a phone interview. “Our hope is that something will change in the ethanol mandate. We want the EPA to pull back on the mandate.”

The EPA is in close contact with U.S. Department of Agriculture and monitoring crop-yield estimates, Alisha Johnson, a EPA spokeswoman, said in an e-mail. The Obama administration is reviewing the nation’s ethanol policy, Jay Carney, White House press secretary, said today.

Hillshire Brands Inc. CEO Sean Connolly said the company, which makes Hillshire meats and Jimmy Dean sausage, has seen higher prices because the grain is used in livestock feed. While meat prices may fall if producers slaughter livestock earlier to avoid higher feed costs, costs may rise again next year, he said.

“Consumers could get some relief from higher food costs,” Connolly said in a phone interview.

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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