Ethanol and tortillas

A question from Yahoo! Answers:

If the use of ethanol becomes more pronounced…?
will the price of tortillas go up?

Yes, but not as much as you would think. In the average food item on a supermarket shelf, farm inputs account for about 20% of the final price. The rest is storage, processing, transportation, and packaging. So, assuming tortillas are not very different from the average food item, doubling price of corn would raise the price of corn tortillas by about 20%. In reality, because of elasticity of demand and substitution, the rise should be less than that.

The item that you should be watching out for is not food, but water. Widespread use of ethanol (and related increases in corn acreage) could put some serious pressure on water resources…

As a side note, corn is not a very good crop to produce ethanol from. Ethanol produced from sugar cane is about 50% cheaper…

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