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Ethanol Standards Would Hike Corn, Feed Prices, Study Says

Published on 23 June, 2009, Last updated at 04:18 GMT

SPRINGDALE — The U.S. government's plan to increase its ethanol mandate will mean higher food prices and more harm to the environment, according to an impact study conducted for two groups that oppose the increase.

"We continue to believe the government's excessive support of the mature corn-based ethanol industry is simply wrong, since it means burning food for fuel," spokesman Gary Mickelson of Tyson Foods Inc. of Springdale said in a statement after Bill Lapp, an agricultural analyst, released his study.

"This policy has contributed to higher corn prices, which have led to increased input costs for food makers — including independent livestock producers — and higher food prices for consumers," Mickelson said.

Corn is a major expense to poultry and beef producers, who want to reduce costs. Ethanol is a fuel additive distilled from plants. That distilling is a major market for corn that corn growers want to increase.

The federal government has a mandate that 10 percent of the fuel coming out of commercial gasoline pumps must be ethanol blended into the gasoline. The Environmental Protection Agency is considering a rule to increase that mandate to 15 percent. The government also maintains a tariff of 54 cents a gallon on imported ethanol.

A recent study from the Food and Agriculture Policy Research Institute at the University of Missouri determined approval of 15-percent ethanol blends would increase corn prices by just $0.04 per bushel, ethanol advocates said in response to Lapp's study.

Increasing the ethanol mandate to 15 percent would require planting as much as 111 million acres of corn, according to Lapp's study. Ethanol would use almost half of the corn crop harvested by 2015. The Grocery Manufacturers Association commissioned the study. The U.S. corn acreage in 2008 was about 85 million acres, U.S. Department of Agriculture figures show.

"Corn and soybean meal are major production costs in the poultry industry, representing 47% of the cost of growing a chicken in 2008," Mickelson said. "Tyson's annual corn and soybean meal expenditures almost doubled from fiscal 2006 to fiscal 2008 and ethanol was a significant reason for the increase."

These arguments have been heard before, the pro-ethanol Renewable Fuels Association replied.

"Time and again, American farmers have answered the need for food, feed and renewable fuel," said association President Bob Dinneen in a statement. "Yet, time and again well-heeled groups seeking to derail the expansion of ethanol are trying to pull the wool over our eyes.

"Many will recall last summer's effort to finger ethanol as skyrocketing oil prices, a weak dollar, speculation, droughts, and global demand drove grain and food prices higher," Dinneen's statement said. "At the time, the U.S. Department of Agriculture, Texas A&M University , and scores of other reputable analysts found such claims to be biased, overblown and outrageous. Even the Congressional Budget Office has looked at the issue and found that energy prices had 3 times the impact on the rising price of food than was the increased use of ethanol. Despite being thoroughly refuted last summer and lacking credibility on the issue, these groups are back at it again."

The ethanol industry is struggling even at its current 10 percent mandate. The fall in fuel prices from last year's record highs has severely hurt ethanol interests, industry figures show.

Ethanol's chief use in the United States is for a fuel additive. Ethanol in gasoline reduces carbon emissions and the price of gasoline, advocates say. However, ethanol plants are hard-pressed to make a profit when fuel prices are as low as they are now, according to industry figures -- even though gasoline prices remain higher than $2.50 a gallon at the pump.

At least 10 ethanol companies have sought Chapter 11 bankruptcy protection in the past year, Bloomberg Business News reports. Valero Energy Corp., the nation's largest independent oil refiner, became an ethanol plant owner in April by buying up seven Midwestern ethanol plants for pennies on the dollar compared to the original investment, Associated Press reports.

"You are going to see this become a trend ... especially with the government wanting to go green," Daniel Flynn, an analyst who follows the renewable fuels industry for Chicago-based Alaron Trading, told Associated Press about the Valero buy. "There are a lot of these ethanol plants hanging by a hair. This could be the perfect time for the big companies to step in."

The U.S. Energy Department reported last week that gasoline supplies climbed 3.39 million barrels to 205 million in the week ended June 12, the largest increase since Jan. 16, Bloomberg reported.

"If you're not eating that much hamburger, you're not using as much Hamburger Helper," Peyton Feltus, president of Randolph Risk Management in Dallas, told Bloomberg. "Until demand shows a sustainable increase, we can't hold these prices up" for ethanol, he said.

Ethanol advocates received another setback earlier this month when a U.S. House panel allowed the federal Environmental Protection Agency to take a wider look at the commodity's environmental impact.

The House Appropriations Committee defeated, 29-30, an amendment to bar the Environmental Protection Agency from using so-called indirect land-use change when measuring greenhouse gases from biofuels, Reuters news service reported.

The United States is the world's major supplier of corn. Critics of ethanol claim that the environment is damaged as other nations have to put more land into farming to produce food as more U.S. corn goes to ethanol. The legislation would allow the EPA to study the question and determine if this increase in farm acreage worldwide offsets or at least mitigates ethanol's environmental benefit.

"There is a huge negative effect here," said Rep. Jo Ann Emerson, R-Missouri, who said an unfair EPA rule "could stop U.S. ethanol production in its tracks."

At A Glance

Scale of Consumption

Corn can produce about 200 gallons of ethanol per acre. If all the corn acreage in the United States were converted to fuel production with corn ethanol, the nation could produce 10 billion gallons of ethanol, the equivalent of about 8 billion gallons of gasoline per year, or about half a million barrels per day. The U.S. consumed about 20 million barrels of crude per day in 2007.


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