General Mills hits out at ethanol subsidies

[WestVirginiaRebel]

Financial Times:

General Mills hit out at ethanol subsidies as a driver of rising food prices in the US, arguing that they needlessly fuel inflation.

“We’re driving up food prices unnecessarily,” Ken Powell, chief executive of General Mills, said in an interview with the Financial Times. “If corn prices go up, wheat goes up. It’s all linked.”

General Mills, which makes Cheerios cereal, Progresso soup and Häagen-Dazs ice-cream, is the world’s sixth-largest food company by revenues. It said last month that it expects its input costs to increase up to 11 per cent next year as it lowered its earnings forecast on inflation fears.

Mr Powell said that the company had had to pay twice as much as last year for wheat and that costs of corn and oats are up 30 to 40 per cent. General Mills has absorbed much of these increases but has also had to pass some of them on to consumers.

The comments come at a time when ethanol subsidies have been a subject of intense debate in the US amid ongoing negotiations to shrink swollen budget deficits.

“There seems to be growing political questioning of the programme,” Mr Powell said, adding that its fate remains highly uncertain.

The ethanol blenders tax credit, which was implemented in 2004, costs $6bn annually. Last week US senators reached an agreement to repeal the tax credit, but such a move would still need approval from Congress.

The fight over ethanol will intensify ahead of the 2012 election season, as corn-producing states such as Iowa cling to the lucrative subsidy which has made their crops more valuable.
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Their gravy train is being threatened.