Biofuels add to U.S. food prices - Bush officials

(Adds farm groups call for food-price probe; paragraphs 3, 6-17 new)

WASHINGTON, June 12 (Reuters) - Biofuels account for a small but growing share of higher U.S. retail food prices, two senior Bush administration officials said ahead of a Senate hearing on the issue on Thursday.

Food prices are forecast to rise by 5 percent this year, the largest increase since 1990, according to the Agriculture Department. Another year or two of high food inflation is forecast.

Six major U.S. farm groups called for a congressional investigation of the factors behind higher prices. “Food companies are trying to pass the blame onto farmers while many are enjoying record profits,” said Tom Buis, president of the National Farmers Union.

Fuel ethanol, distilled mainly from corn, and biodiesel, made from soybeans and other oils, was responsible for 0.10 to 0.15 percentage point of 2007’s 4 percent increase in the Consumer Price Index for food, according to federal researchers.

“In other words, ethanol and biodiesel consumption accounted for approximately 3 to 4 percent of the overall rise in retail food prices,” Agriculture Secretary Ed Schafer and Energy Secretary Samuel Bodman wrote in a letter to the Senate Energy Committee.

Biofuels were responsible for 0.20-0.25 percentage points of the rise in CPI for food during the first four months of this year, estimated at 4.8 percent, Joseph Glauber, the Agriculture Department chief economist, told the Senate Energy Committee.

Two senators said Americans are worried by rising food and fuel prices despite studies saying biofuels hold down gasoline prices by as much as 50 cents a gallon and are a minor contributor to higher grocery prices.

“It’s a tough explanation to folks out there,” said Alaska Republican Lisa Murkowski, because Alaskans feel no relief on fuel prices. “Right now, the fishing boats are not able to go out.”

Officials from the Energy and Agriculture departments said there would be few benefits from a temporary waiver of a federal law requiring the use of renewable fuels. The waiver has been suggested as a way to bring down corn prices and hold the line on food prices.

“The simple word ... is devastation,” said Assistant Energy Secretary Alexander Karsner, who said a waiver would discourage investment in alternative fuels.

USDA’s Glauber said ethanol output is forecast to exceed 9 billion gallons this year, the amount required by law, due to favorable ethanol prices. As a result, “we see the mandate as not being binding,” he said.

Agricultural economist Joe Outlaw of Texas A & M University, said livestock producers are suffering dramatic losses because of higher feed prices.

“If current market conditions persist, meat supplies will eventually decline due to producer attrition and capacity reduction, which will lead to higher retail prices for meat,” said Outlaw.

USDA said higher beef, pork and poultry meat prices could add 0.6-0.7 points to food price increases over one or more years.

Jason Pyle, chief executive officer of Sapphire Energy Inc, based in San Diego, California, said Congress should alter the definition of what is considered a renewable fuel and thus eligible for federal tax breaks.

Sapphire aims to produce “green crude” from algae. He said the 91 octane fuel could be available within five years and estimated its production cost at $50-$80 a barrel.

(Reporting by Charles Abbott and Jasmin Melvin; ; Editing by Marguerita Choy)

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