Tuesday, November 30, 2010

Al Gore Confirms what Dairy Farmers Know – U.S. Corn Ethanol is Not Good Policy

Last week, Al Gore had an epiphany that many dairy farmers had several years ago; corn-based ethanol is not good policy. He admitted he “made the mistake” of supporting corn-based ethanol to win votes from the farming population in Iowa and Tennessee during his 2000 presidential bid.

He went on to say, “It’s not a good policy to have these massive subsidies for U.S. first generation ethanol. First generation ethanol I think was a mistake. The energy conversion ratios are at best very small.”

The energy content of a gallon of gasoline is higher than ethanol; 1.5 gallons of ethanol are required to provide as much energy as one gallon of gasoline. Corn ethanol requires about the same energy to produce that it eventually yields. As a result, there has been considerable debate about how sustainable corn-based ethanol could be in replacing fossil fuels in vehicles.

The U.S. government spent up to $7.7 billion subsidizing ethanol in 2009. The federal government supports ethanol by subsidizing the price of corn, providing financial incentives for building ethanol distilleries, provides a $.45/gallon ethanol blender’s tax credit, imposes tariffs on ethanol imports and mandates particular amounts of consumption. The Energy Independence and Security Act of 2007 requires that by 2022, a total of 36 billion gallons of renewable biofuels be consumed annually and that corn ethanol make up no more than 15 billion gallons of that total. In 2009, domestic ethanol production was 10.6 billion gallons, up from 8.9 billion in 2008 and 6.5 billion in 2007.

Gore stated, “The size, the percentage of corn particularly, which is not being used for first generation ethanol definitely has an impact on food prices. The competition with food prices is real.”

The statistics for the percent of U.S. corn used for ethanol production this year vary from 32% to 41%. Whether it’s 32% or 41% or somewhere in between, that’s a lot of corn being used as fuel. Diverting corn from other uses to produce ethanol has raised corn prices, elevated the demand for cropland, increased the price of animal feed and driven up the retail price of food.

Approximately half of all corn production in the U.S. goes to feeding livestock. As dairy producers, my husband and I purchase the majority of our feed. I’ve seen the price of commodities, including corn and soybean meal, double and triple since 2007. Feed accounts for about half of our total expenses so this rise in feed costs hits us hard and makes it extremely challenging to be profitable.

Dairy farmers are not able to “pass on” increased expenses like retailers. The milk price paid to dairy farmers is based on the Chicago Mercantile Exchange (CME) price for Class III milk and the cost of production is not a factor in determining this price. See my blog Do Dairy Farmers Profit from Increased Retail Milk Prices?.

Farmers who produce corn are not to blame. I believe farmers should receive a fair price for their product. It’s the federal government who should examine policy to determine the unintended consequences that policy could create. In this case, the extreme increase in livestock and poultry feed hurts dairy, cattle and poultry farmers. And higher retail food costs hurt all of us because we are all consumers.

The U.S. ethanol policy is currently under congressional review since the credits are up for renewal on December 31, 2010. I hope congress thinks twice before renewing ethanol tax credits and subsidies. The government should not be providing subsidies for ethanol production. The ethanol industry should stand on its own. Government subsidies and mandates are creating a false market that isn’t sustainable and benefits few.

Am I the only one who is frustrated with politicians who mandate policy based on their own selfish political gain? This, and many other failed government policies, hurt American businesses and consumers.

If Al Gore was wrong about ethanol policy could his global warming theory be incorrect as well? Maybe we should give him a break; after all he did create the Internet.

4 comments:

  1. Interesting. I was just blogging about ethanol last night and will be posting it later this week. Being in smack in the middle of "ethanol country," my viewpoint is quite different than yours. I do agree that ethanol subsidies need to end, but it needs to be done in a way that puts ethanol producers on a level playing field with oil producers (which should have been done from the get-go). Ethanol has lessened the corn farmer's dependence on subsidies and brought the price of corn closer to (and above)the cost of production. Wouldn't it be nice if the government would just get out of the way, let the free market dictate prices, and give the farmer more flexibility in what they produce?

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  2. Dairy Mom,
    Thank you for a great commentary! Like so many US government policies, ethanol subsidies benefit few while hurting the many who are paying for it. In general, any policy that uses food for fuel is fraught with danger and should be approached very carefully. Ethanol in itself is not the problem; there are many creative ways to produce ethanol, but the mandate that favors corn to ethanol in the US is wreaking havoc on commodity markdets, and therefore on livestock producers, world food consumers and developing nations that depend on food subsidies.

    I agree that the free markets function very well without government intervention.

    I have a question for iafarmwife.com --- How could ethanol subsidies be eliminated in a way that puts ethanol producers on a level playing field with oil producers?

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  3. I like it Brenda. It frustrates me to see farmers fall for this crap, knowing full well the economic ramifications that we can all see in higher food prices at the grocery store and farmers are experiencing in corn prices for their livestock.
    I wrote this recently as a follow-up to another post of mine on the subject. http://conservativepoliticalblog.wordpress.com/2011/01/22/ethanols-roi-not-just-bad-for-mpgs/

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  4. Al Gore was smart enough to realize and humble enough to admit his mistake in supporting ethanol policy. Are we ready to do the same with our denial of climate change?

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Thank you for reading my blog and taking the time to comment! I’m opening the doors of our farm to share with you and enjoy engaging in discussion. Please be respectful in your comments. I reserve the right to remove posts that include name calling, slander, and vulgar language or contain links to websites that assault animal agriculture.

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