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Government programs aimed at bringing corn-derived ethanol to market as an additive or alternative to gasoline have sent food costs spiking. Now, with food prices prompting riots around the globe, regulators, bankers and many farmers worry that an erosion of support for these programs could bring the party to a halt.
Indeed, a rising number of members of Congress insist the U.S. roll back subsidies for the corn-based fuel. But how likely is the government to stop filling the trough? Government support programs are all but impossible to kill, particularly agriculture programs that are ostensibly created to help family farmers but add billions to the income statements of giant agribusinesses such as Archer Daniels Midland Co. ADM and its competitors aren't going to give that up without a fight. According to a study conducted for Ethanol Producer Magazine by the Center for Responsive Politics, ADM spent $440,000 on lobbying expenses during the six months leading up to passage of the 2007 energy bill, which dramatically raised mandated ethanol production and retained a 54 cents per gallon tariff to shield domestic corn ethanol from imports, which are mostly derived from sugar cane. The Renewable Fuels Association, a trade group of ethanol producers, spent $310,000 in lobbying during the same period. In all, the ethanol industry devoted $1.6 million to lobbying Congress over the energy bill. Their efforts aren't likely to slow down amid the current boom. Ethanol's chief defenders in Congress include Iowa's two senators, Democrat Tom Harkin, the chairman of the Agriculture Committee, and Republican Charles Grassley. Both have collected more than $1 million in campaign contributions from agribusiness during their careers on Capitol Hill. But longtime critics of ethanol subsidies sense the time is right to mount a serious offensive. On April 29, Rep. Jeff Flake, R-Ariz., introduced a bill to repeal mandates for renewable fuels and tax credits for ethanol producers as well as end tariffs on imported ethanol. He also asked President Bush to direct the Environmental Protection Agency to waive the mandates. The Energy Independence and Security Act of 2007 requires that the U.S. produce 10.5 billion gallons of fuel from corn ethanol this year, increasing to 15 billion gallons by 2015. The EPA has authority to repeal the mandate if it determines the level of ethanol production is hurting the economy or environment. "Corn is being sold at nearly six dollars a bushel today, as compared to two dollars a bushel nearly two years ago," Flake wrote in his letter to the president. "The new standard has done little but add stress to an already strained economy." Other leading opponents of ethanol subsidies include another Arizona Republican, Sen. Jon Kyl, and Republican Sen. Kay Bailey Hutchinson of Texas. In an opinion piece posted April 28 on Investor's Business Daily, she complained that "we are already seeing the ill effects" of the 2007 energy provisions. "Last year, 25% of America's corn crop was diverted to produce ethanol. In 2008, that number will grow to 30%-35%, and it will soar even higher in the years to come," she wrote. Because of the switch to corn ethanol, boosting the cost of feeding livestock and driving up the price of meat. According to Hutchinson, the price of corn, wheat and soybeans has increased by more than 240% since February 2006. "While the blame for higher costs shouldn't rest exclusively with biofuels -- drought and rising oil costs are contributing factors -- the expansion of biofuels has been a major source of the problem," she says. Ethanol has other drawbacks. David Pimentel, a Cornell University agriculture expert, estimates that ethanol takes more energy to produce than it yields. Growing the corn and converting it to ethanol requires 131,000 BTUs per gallon, whereas that gallon provides only 77,000 BTUs. "Every time you make one gallon of ethanol, there is a net energy loss of 54,000 BTU," he says. Meanwhile, several studies counter claims that ethanol produces less pollution than fossil fuels. Ethanol's supporters say the criticisms are primarily "marketing strategies" by the oil industry, which they blame for most of the run-up in global food prices. Furthermore, they say Pimentel's numbers don't take in improvements in refining and crop yields that have lessened the impact on the environment. Nevertheless, Rick Tolman, chief executive of the National Corn Growers Association, concedes that demand for ethanol might account for one-third of the spike on corn prices. Bush last week defended federal support for ethanol but acknowledged that alternatives, such as cellulosic versions from switch grass or wood chips, must be pursued. Recognizing the growing unrest over subsidies, the ethanol lobby last week embraced a tentative agreement between the House and Senate over funding for a new farm bill that would reduce the tax credit provided to fuel producers that use ethanol to 45 cents a gallon from 51 cents, which would save the federal budget more than $1 billion. The tariff on imported ethanol, however, would be extended until Dec. 31, 2010. The compromise is a small one in a bigger fight to preserve government support. Last week the Renewable Fuels Association held a press conference to counter claims that ethanol subsidies are boosting food prices. They blame oil prices for driving up fertilizers and other grain production costs. Though a far cry from the elimination that ethanol's critics seek,
they would see a subsidy cut as a tactical victory. "Subsidies do
become entrenched," says Demian Moore at Taxpayers for Common Sense.
"If this passes, it would be a pretty big leap relative to how Congress
usually works." - Bill McConnell See related story: Betting on the farm Categories Deal Video
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High prices for corn and other commodities are fueling boom times on U.S. farms. (
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