Soaring corn prices due to the expanding US ethanol market have already driven US retail food prices up by $14 billion over the last year, claims a study by the Iowa State University Center for Agriculture and Rural Development.
Entitled "Emerging Biofuels: Outlook of Effects on US Grain, Oilseed, and Livestock Markets", the study's outlook for US food prices is bleak. It confirms that greater US ethanol production will mean more competition for land and grain, and will subsequently cause long-run crop price increases.
The report suggests that this rise in US retail food prices is likely to get worse and that they could be pushed even higher - to an annual increase of $20 bn. Crude oil prices could increase from $65 to $70 per barrel and US corn prices to $4.42 per bushel, compared to $2 per bushel in mid-August 2006.
In response to higher feed costs, livestock farmgate prices and therefore retail prices for meat, eggs and dairy will also increase.
The magnitude of US ethanol market will depend on the price of oil - which is unlikely to decrease much from current levels - and the future makeup of the US automobile fleet.
If Americans show sufficient demand for E-85 (a fuel that typically contains a mixture of up to 85 percent ethanol and 15 percent gasoline), corn-based ethanol production will increase to over 30 bn gallons per year, claims the study.
This would cause the US corn acreage to increase to more than 110m acres, largely at the expense of soybean and wheat acres. Equilibrium corn prices would then rise to more than $4.40 per bushel.
The direct effect of higher feed costs would be to push up beef, pork and poultry prices by more than 4 percent, and to send egg prices rocketing by about 8 percent.
Corn will remain the primary raw material for biofuels in the Corn Belt, ahead of cellulosic ethanol from switchgrass and biodiesel from soybeans, because these crops are less economically viable, says the study.
The Grocery Manufacturers Association (GMA) recently urged a full report into the effect the growing use of corn for biofuels could have on the US food industry.
"We support policies that will permit an increase in biofuels production without hampering the ability of the food industry to provide consumers - both in the US and around the world - with a reliable and affordable supply of food," said Cal Dooley, GMA president and chief executive officer.
US President George Bush earlier this month signed an executive order directing federal agencies to draw up regulations that will "cut gasoline consumption and greenhouse gas emissions from motor vehicles".
These regulations, which he wants in place by the end of 2008, are expected to boost domestic ethanol production and could cause food prices to rise even higher than current forecasts.