Economic Report of the President

derground water resources once thought virtually unlimited, shouldnow be priced to more appropriately reflect their limited availability.FUTURE CAUSES OF RISING FOOD PRICESWhen food prices soared upward in 1973, many economists saw itas a temporary deviation from the longer-term trend, and the apparentreturn of surplus production in 1976-77 helped support thisnotion. But food prices did not fall to their earlier trend line (Chart6). While exhibiting the same increase in variability as commodityprices, food prices remained high relative to other prices throughoutthe 1970s, and additional price increases are likely for at least thefirst half of the 1980s.The Rising Demand for OutputProjected increases in exports and in the use of grain domesticallyfor animal feed indicate sustained upward pressure on commodityprices for the next several years. Other economic forces will placestill more pressure on agricultural resources, particularly cropland.Rising energy prices, for example, are increasing the demand for naturalfibers, primarily cotton. High sugar prices and the expandinguse of sugarcane for ethanol production in Latin America are expectedto double the demand in the United States for corn as a sweetenerby 1985.But perhaps most important is current energy policy which encouragesthe production of alcohol fuels from corn. This policy impliesthe need for an additional 370 million bushels of corn and a 5percent increase in corn cropland by the end of 1982. The ethanolproduced from the corn would replace about 60,000 barrels of oilper day—about 1 percent of U.S. oil imports. Other things beingequal, such an increase in demand would increase the season averageprice of corn about 10 percent. The high cost of producing ethanoland the higher corn price, even when offset by the value of the ethanolby-products and an increase in export earnings, would meanthat the Nation was paying nearly twice the present world price foreach barrel of foreign oil displaced. The benefits of the gasohol programmay be substantial and difficult to quantify, but its costs arelarge and its pressures on cropland significant. Furthermore, giventhe incentives already authorized, the amount of corn required forgasohol could more than double by 1985.Pressures on Farm Input UseBy itself, a growing demand for agricultural products would notnecessarily mean rising real prices. Advances in crop yield and otherproductivity gains throughout much of the postwar period made itpossible to increase production in line with steadily growing demandwithout bringing high-cost, marginal resources into use. But this is121