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Livestock groups hit ethanol mandate

The nation's top livestock groups organized a briefing for congressional staffers in Washington Thursday that supports altering U.S. energy law to shrink the mandate for ethanol use in short crop years like the drought of 2012.

"Unfortunately. government policies have only exacerbated this dire situation," said Representative Bob Goodlatte (R-VA), the vice chair of the House Agriculture Committee who last October introduced a bill to repeal the mandate, known as the Renewable Fuel Standard. Goodlatte has also introduced a bill (HR 3077) that would require EPA to reduce the RFS by up to 50%, depending on how tight the USDA stocks-to-use ratio is for corn.

"One of the big drivers of ethanol is an artificial market created by the federal government," said Goodlatte, who was at the briefing to introduce an independent economist, Thomas E. Elam, of FarmEcon LLC. Elam rolled out a study and slides that debunked the ethanol industry's claims that its fuel saves consumers money and reduces U.S. dependence on imported oil.  And it showed that the RFS has increased corn prices and food costs above the overall rate of inflation since 2007.

The effect of this support for ethanol, Elam said, is that "It's increased and destabilized corn prices." And it has diverted U.s. gasoline production into the export market.

Elam pointed out that this year's high corn prices have already led to the idling of at least three or four ethanol production plants. He

When asked by if changing the RFS so that it reduces ethanol use would lead to a smaller ethanol industry, Elam replied, "If we can't produce enough corn, everybody has to shrink." Both the ethanol and livestock industries would cut back, resulting in lower corn prices that would benefit ethanol producers as well as livestock, he said. "The corn growers would be the losers," he said.

Elam's study shows that corn prices accounted for $43 billion of the nation's food costs last year, a much bigger share than any other commodity, with soybean meal and oil and wheat being the other basic commodities behind most foods as wells as meat, poultry, egg and milk production.

The briefing was sponsored by the American Meat Institute, California Dairy Inc., Milk Producers Cooperative, National Cattlemen’s Beef Association, National Chicken Council, National Pork Producers Council and the National Turkey Federation.

It wasn't welcomed by the National Corn Growers Association (NCGA) or Growth Energy, an ethanol trade group.

“When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes. It’s working," NCGA president, Garry Niemeyer said in a statement.  "The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline. Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices."

“And while it is true that our corn crop is suffering, it’s still in the field," Niemeyer said. "We won’t know the actual size of the 2012 corn crop until months from now. In the meantime, the market is working. All corn users are responding to market signals. Ethanol production and exports are down. In addition, there is currently an ethanol surplus in the United States that will further reduce demand on the 2012 corn crop. Given the challenges of the drought and suffering of all farmers, now more than ever, U.S. agriculture needs to pull together.  NCGA will continue to help lead the way in trying to unite, rather than divide, American agriculture.”

Growth Energy's CEO, Tom Buis, was more critical.

“While farmers across the country are dealing with a severe drought, the livestock lobby is spreading misinformation and taking advantage of this crisis by playing on people’s fears during a time of economic turmoil,” Buis said. “This is nothing more than an orchestrated attempt to place blame on American Ethanol producers for rising food prices. Time and again, studies have shown that ethanol production has a minimal impact on the cost of food, but it seems they believe that if they spread the same misinformation over and over again, it will magically become true. Apparently they operate on the theory of, ‘if at first you don’t succeed try, try again.’”

Speaking for the coalition of livestock groups releasing the study, the National Pork Producers Council (NPPC) said Thursday, that it supports Goodlatte's “Renewable Fuels Standard Flexibility Act” (H.R. 3097), which is also sponsored by House Ag Committee member, Jim Costa (D-CA).

"Such relief is extremely urgent," NPPC said in a statement, "because the recent spike in corn prices prompted by drought conditions in much of the Corn Belt has analysts predicting the United States will run short of corn this summer. Another short corn crop would be extremely devastating to the animal agriculture industry, food makers and foodservice providers, as well as consumers."

According to an NPPC summary of Elam's study on ethanol:

  • Ethanol, because its energy cost is higher than gasoline and because of its negative effect on fuel mileage, added about $14.5 billion, or 10 cents a gallon, to motorists’ fuel costs in 2011.
  • Increased ethanol production since 2007 has had no effect on gasoline production or oil imports, contrary to supporters’ claims.
  • Corn used for ethanol production rose 300 percent from 2005 to 2011, increasing from 1.6 billion bushels to 5 billion. (Ethanol production now uses more than 40 percent of the U.S. annual corn supply.)
  • Corn now represents about 80 percent of the cost of producing ethanol compared with 40-50 percent before implementation of the mandate.
  • Corn prices jumped to more than $6 a bushel in 2011 from $2 in 2005.
  • The rate of change for the Consumer Price Index for meats, poultry, fish and eggs increased by 79 percent while it decreased by 41 percent for non-food items since the RFS was revised in 2007.
  • Ethanol production costs and ethanol prices have all but eliminated a market for ethanol blends higher than 10 percent.
  • The United States exported 1.2 billion gallons of ethanol in 2011.
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