How much Corn would we grow if not for ethanol?

Since production is tailored to demand, the critics don’t want more food, they want less corn

Our Take:
C. Ford Runge is at it again, spreading his pretense as far as Brisbane, Australia. An article appearing there Wednesday details Runge’s simple-minded fear-mongering economics as a justification for current Senate legislation (Coburn et al) that would gut the US ethanol program.

Runge, University of Minnesota economics professor, pretends that the amount of corn we grow is fixed, and that we are now allotting more to ethanol, taking it away from the use of corn to produce food.

To answer Runge’s charge in his own rhetorical style, you don’t have to have a PhD in economics to know that without ethanol, less corn would be produced. We’d still grow the same amount demanded by the feed and export (for animal feed) markets. It would take less corn to satisfy demand if not for ethanol. And that is what Runge, and Senators Coburn and Cardin are really after. They don’t care about hungry people. If they did then they would know the way to feed them is to ensure the profitability of farming–that is the only incentive that guarantees that America will produce as much food as it can.

It’s a very predictable method of attack. Take away the ethanol tax credit and reduce the number of ethanol producers. The ones remaining will charge more for their product which will be in high demand thanks to the renewable fuels standard. And then the Big Oil lobby will complain about the onerous cost of ethanol, point to the high gasoline prices the Oil industry has engineered and deliver to a compliant US Congress the perfect alibi to do away with the ethanol requirement altogther. We’ll be back to mainlining oil.

The oil producers in Coburn’s home state of Oklahoma can go back to profiteering on the backs of every American driver by enjoying  their monopoly at the pump. We are looking at $4 a gallon for gasoline now. Knock the legs out from under ethanol and you better be ready to try five or six dollars a gallon on for size. That might create a good number of hungry people in America who choose gas for work over food.

Do away with ethanol and Cardin can claim an environmental victory because “out of sight, out of mind.” Rather than bet on American agricultural and renewable energy innovation to continue the trend of reducing environmental impact while increasing yield, Cardin would prefer to outsource both food and energy production.

The part of the economic picture that Runge deliberately brushes aside is that the success of ethanol is a major part of what is inspiring that innovation in crop production. Corn yield has grown right alongside the growth of the ethanol industry. In 1993, farmers brought in 100 bushels per acre. By 2003 that yield had risen to 142 bushels per acre, and in the last few years 150 bushels is the floor. Again, this is no accident. The profitability of ethanol is what is paving the way to this explosion of food productivity.

At this moment seed companies are ready to bring to market varieties of corn and other crops that are more water efficient (drought resistant) and more productive with fewer nutrient inputs than any crops ever grown before. Take away ethanol and prepare to slow down or end this kind of innovation.

Without the market foundation provided by being able to sell part of their crop for energy, a huge number of American crop farmers would not be in business and the rural communities that depend on the prosperity of farmers would dry up and blow away. That is unless we went back to a farm welfare system. Massive government subsidization of crops that cost more to produce than the market would pay for them. Why? Because the system deliberately encouraged overproduction in order to depress prices. A market that knows it can’t possibly use up what it demands will pay a lot less for that product.

And depressing the price for crops consequently depresses the value of land, the prices commanded by all consumer products in the rural economy, and the quality of products offered on Main Street. Ending farm-based energy is a prescription for a downward economic spiral.

Coburn and Runge and Cardin can complain about $6 billion in ethanol subsidies–an investment that generates several multiples in state and federal tax revenue. But doing away with ethanol, we will have to go back to even pricier farm subsidies, which incidentally didn’t do nearly as well as renewable energy to insure economic vitality in the heartland.

In case you want to read the carpings of Runge and company, here is the article that appeared in the April 13 edition of Brisbane Times:

Surging food prices fuel ethanol critics

A surge in global food prices has prompted fresh criticism of US subsidies for ethanol, which diverts massive amounts of corn from global food supplies for energy.

Producers of ethanol argue that the biofuel helps blunt the impact of high imported petroleum prices, but critics say the US policy giving tax breaks for ethanol used in motor fuel ends up being bad for food, energy and the environment.

The issue has created unusual political alliances, with environmental groups and some lawmakers from both parties clashing with farm interests and legislators from the corn-producing midwest states.

Senators Tom Coburn, a Republican from Oklahoma, and Ben Cardin, a Maryland Democrat, introduced a measure last month to scrap the tax credit of 45 cents per gallon for ethanol in gasoline.

“The ethanol tax credit is bad economic policy, bad energy policy and bad environmental policy. The $6 billion we waste every year on corporate welfare should instead stay in taxpayers’ pockets where it can be used to spur innovation, stimulate growth and create jobs,” said Coburn.

The lawmakers cited a Government Accountability Office report describing the tax credit as “largely unneeded today to ensure demand for domestic ethanol production.”

C. Ford Runge, a University of Minnesota professor of applied economics and law, argues that ethanol from crops has many “hidden costs” that should dissuade the government from subsidies.

Runge, who raised concerns about ethanol policy as early as 2007, says his research suggests some 30 per cent of food price increases come from diversion of US corn for ethanol.

“If you’re taking 40 per cent of the US corn crop, the largest of any country on earth, and putting it to one use… you don’t have to have a Ph.D in economics to know that’s going to put upward pressure on prices,” he told AFP.

In an essay written for Yale University’s Environment 360 online magazine, Runge cites “strong evidence that growing corn, soybeans, and other food crops to produce ethanol takes a heavy toll on the environment and is hurting the world’s poor through higher food prices”.

The UN’s Food and Agriculture Organization has warned that rising food prices are driving unrest around the world, including recent uprisings in the Middle East and North Africa.

Runge said high food prices – including corn at record highs – are a factor in the unrest, saying “these countries have been subjected to the pressures in their household costs,” adding to the political pressures.

Economist Ed Yardeni at Yardeni Research said diversion of crops to fuel is important because the US provides more than half of global corn exports and over 40 per cent of soybean exports.

“So our ethanol policy is exacerbating the global food fight, destabilizing the Middle East… Is that insane, or what?”,” Yardeni said.

Yet ethanol has its staunch defenders including Senator Tom Harkin the corn-belt state of Iowa, who told a recent hearing that ethanol “has dramatically reduced our need for oil.”

Harkin said the focus on ethanol diverts attention from the oil industry’s “very lucrative and unnecessary subsidies.”

Bob Dinneen, president of the Renewable Fuels Association, said ethanol is important for the goal of energy security, and he dismisses its impact on food prices, saying refiners use only the starch component of feed corn, and produce animal feed as a byproduct.

“Ethanol is the only thing we have today to moderate skyrocketing prices of gasoline and crude oil,” Dinneen said.

“If the chaos in the Middle East teaches us anything, it should be that America must forcefully begin down the path of energy self-reliance. Increasing the use of domestic renewable fuels like ethanol is the first, and arguably, the easiest step we can take,” he said at a congressional hearing.

US President Barack Obama said in a March 30 speech on energy policy that ethanol should be part of the US energy future as part of an expanded effort for biofuels.

He said there is “tremendous promise” in renewable biofuels, “not just ethanol, but biofuels made from things like switchgrass, wood chips, and biomass.”

A White House official said that “corn ethanol is already making a significant contribution to reducing our oil dependence. But going much further will require commercialization of advanced biofuels technologies.”

Dinneen argued the US will need a variety of biofuels, but added “the existing ethanol industry is providing the foundation on which those other biofuels will be able to grow.”

AFP

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