Posted on 12/22/2009 5:52:31 PM PST by sickoflibs
According to a recent Congressional Budget Office report, the increased use of ethanol is responsible for a rise in food prices of approximately 10 to 15 percent.
Why?
We're turning corn into fuel — a highly inefficient one, at that — instead of food.
The Mackinac Center for Public Policy points out that "mixing food and fuel markets for political reasons has done American consumers no discernable good, while producing measurable harm."
However, perhaps summing up the issue most succinctly is Mark J. Perry, professor of economics and finance at the University of Michigan-Flint:
Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the Wall Street Journal, Reason Magazine, the Cato Institute, Investor's Business Daily, Rolling Stone Magazine, the Christian Science Monitor, The New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institutions, the Heritage Foundation, George Will and Time magazine, you know that ethanol has to be one of the most misguided public policies in US history.
But Brazil seems to have made it work. Using just 1 percent of its arable land, Brazil produced 6.57 billion gallons of sugar ethanol last year, roughly half the annual oil production of Iraq. Ethanol accounts for about 50 percent of Brazil's automotive fuel. General Electric and Brazilian aircraft maker Embraer are working to develop ethanol suitable for powering commercial aircraft, with a test flight possible by early 2012. Most importantly, Brazil relies on imported oil for only 10 percent of its energy needs today — due in large part to its ethanol industry.
So, what's Brazil doing right?
The answer is simple. Unlike the United States, Brazil makes its ethanol from sugar, which yields over eight units of energy for each unit invested, whereas corn-based ethanol yields a paltry one and a half units of energy for each unit invested. Sugar-based ethanol is also cheap to produce, at only 60 cents a gallon.
It seems so obvious. An alternative fuel that works already exists. What's stopping us from using it?
What's stopping us is a decision made 36 years ago by a man named Rusty Butz, before ethanol was even a blip on anyone's radar.
In 1973, Earl "Rusty" Butz, President Nixon's USDA chief, did away with the agricultural price supports introduced by the Roosevelt administration. These supports were intended to protect farmers' finances by limiting supply when bumper crops would have otherwise flooded the market and to avoid squeezing consumers by releasing the warehoused grain when crop yields were low and prices would naturally spike.
"An alternative fuel that works already exists. What's stopping us from using it?"Butz ginned up political support for the administration by encouraging farmers to plant "fencerow to fencerow" while the government provided them with subsidies to cover the difference between market prices and production costs.
Of course, growing "fencerow to fencerow" did exactly what one would expect: production exceeded demand, and prices took a dive. This didn't sit too well with Archer Daniels Midland (ADM), the nation's largest corn refiner.
Now, there's only so much corn one person can eat. ADM suddenly needed to figure out how to somehow stimulate sales of all that excess food.
Then a Japanese technique called "wet milling" caught the company's eye. Wet milling turned corn kernels into what ADM hoped would be a low-cost alternative to sugar — the now-ubiquitous high-fructose corn syrup.
While high-fructose corn syrup was an alternative to sugar, it still wasn't possible to manufacture cheaply enough to make it a low-cost alternative.
Enter Dwayne Andreas, who, at the time, was ADM's CEO.
It just so happened that Florida sugarcane growers were in the middle of a push to get Congress to impose a tariff on foreign sugar, which was exerting downward pressure on market prices. Andreas decided to help fund lobbying efforts by Florida sugarcane growers to convince Congress to impose a quota on non-US sugar, which had been flooding the US market and keeping prices down.
In short, ADM backed its competition's political agenda and, when Ronald Reagan took office, the sugar tariff was swiftly ushered into place. Naturally, sugar prices escalated, eclipsing the cost of ADM's high-fructose corn syrup. Soft-drink makers like Coca-Cola and Pepsi switched to the cheaper alternative in short order.
Perhaps this is why a statue of Ronald Reagan stands at ADM headquarters. It is a token of appreciation from one free marketeer to another for promoting what is, essentially, a socialist policy.
ADM's CEO, Andreas, doesn't seem to view our capitalist society through the same lens as most others. In one interview, he said, "There isn't one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians. People who are not in the Midwest do not understand that this is a socialist country."
From the looks of things, "socialism" has done well for Dwayne Andreas. A report by James Bovard of the Cato Institute notes, "At least 43% of ADM's annual profits are from products heavily subsidized or protected by the American government. Moreover, every $1 of profits earned by ADM's corn sweetener operation costs consumers $10."
Minyanville professor and Houston fund manager Ryan Krueger says,
The sugar tariff is the biggest scam since one hour Martinizing. For the first time in human history, more than a billion people this year will be classified as 'chronically hungry.' We'll artificially sweeten prices for US farmers, bankrupting poor farmers in Africa or South America and then turn around and send them food aid.
He continues,
The world sugar price is 22 cents per lb. The US price because of the tariff? 44 cents. Want to make candy and buy sugar for 22 cents? Sorry, no can do — it's illegal. If sugar prices plummet? Don't sweat it, Washington's got that covered, guaranteeing a price of no less than 18 cents.
Surely, there must be more to this story.
Nope.
In Krueger's words,
I'd love all the upside and none of the downside in a game where my competitors are barred from playing against me, yet if I still somehow fail to perform the scoreboard operator nonetheless puts up points for me — as long as I vote for the right referee when his contract's up.
Okay, so ADM hijacked the sweetener market. What does this have to do with Brazilian ethanol and our country's insistence on forging ahead with subpar ethanol made from corn, even though tariff-free cane ethanol would cut gas prices significantly?
The path leads directly to good old political back-scratching.
You'd be correct to assume that demand for soft drinks drops during the cold winter months. What would ADM do with idle wet-milling equipment during high-fructose corn syrup's "off season"?
It turns out that wet-milling machines also make ethanol.
The federal government provides a 45 cent per-gallon subsidy for domestically produced (corn-based) ethanol. Add to that the crippling sugar policy, plus a 54 cent per gallon tariff placed specifically on foreign ethanol (sugar based, from Brazil), and bang — ADM corners the domestic ethanol market. Pretty crafty, huh?
California Governor Arnold Schwarzenegger says, "The federal government is subsidizing corn-based ethanol and we have a tariff of 54 cents-a-gallon on the most important ethanol to discourage cheap fuel coming in from Brazil. This is crazy."
Fed Chairman Ben Bernanke says, "As you know, I favor open trade and I think allowing Brazilian ethanol, for example, would reduce costs in the United States."
And C. Ford Runge, an economist specializing in commodities and trade policy at the Center for International Food and Agricultural Policy at the University of Minnesota, says, "the obvious thing to do is lower that [sugar] tariff and let some Brazilian ethanol come in. But one of the fundamental reasons our biofuels policy is so out of whack with markets and reality is that interest-group politics have been so dominant in the construction of the subsidies that support it."
Until corporate welfare takes a backseat to real, proven solutions that help stateside consumers save a bundle at the pump (and help our less-prosperous allies financially), corn will remain king.
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Remember, these are the guys (in Washington, DC) who we expect to flawlessly manage U.S. industrial policy.
Also, they believe that they can practice medicine.
Bill O' Reilly lost me years ago when he ranted about how the Federal government should have replaced oil with ethanol in prior years, claiming we could be like Brazil. I thought, "Many people are going to believe this."
I was right. Then Bush passed the : Energy Policy Act of 2005
Increases the amount of biofuel (usually ethanol) that must be mixed with gasoline sold in the United States to 4 billion gallons by 2006, 6.1 billion gallons by 2009 and 7.5 billion gallons by 2012;
Corn is the most abundant grain crop in the U.S. and there is generaly a carryover or surplus every year. The petroleum lobby spreads most of this misinformation about ethanol.
To imply that using corn to produce ethanol drives up food prices is the same as implying that humans cause global warming.
This article is hogwash.
This article just sent me to the kitchen for a thimble of bourbon.
Really, how many corn cobs does it take to fill up an SUV with ethanol? 1000? 5000?
Oil is NOT loaded with water like ethanol is. Guess what, water is NOT a fuel. Ethanol must be trucked, guess what that requires.... energy.
Snip: Many politicians benefit from promoting and subsidizing such programs because they can get “gifts” from the manufacturers they subsidize, as well as campaign contributions. Cal Dooley, president of the Grocery Manufacturers Association says that “Many policy makers were seduced by ethanol,” and it appears that many others still are (Etter A8). Whether or not the program works or is cost effective does not matter to them, as long as they get re-elected, and can line their pockets with taxpayer money at the same time. Those few politicians and figures that oppose such programs are usually scoffed away, as the pro-subsidy politicians continue banter and propaganda to promote their latest scheme.
The unraveling of the ethanol scam
Also in May, Mark W. Rosegrant of the International Food Policy Research Institute, testified before the U.S. Senate on biofuels and grain prices. Rosegrant said that the ethanol scam has caused the price of corn to increase by 29 percent, rice to increase by 21 percent and wheat by 22 percent. Rosegrant estimated that if the global biofuels mandates were eliminated altogether, corn prices would drop by 20 percent, while sugar and wheat prices would drop by 11 percent and 8 percent, respectively, by 2010.
So you support pissing the tax payers money away???
Ethanol is a waste of energy to produce. If its so excessive, why has the price tripled over the last decade? Get rid of it and drill oil.
Mary Christmas
bkmark
There is no shortage of grain in this country in most years. On the other hand, there is not that much land in this country suitable to grow the sugar that is being held up so gloriously in this article. Brazil is particularly suited to that crop and much of Brazil's soybean crops have been negatively affected by rust.
Like you, I find the article to be less than honest.
...I love cornbread and wheatbread, toasted in the morning, smeared with butter, eggs and swine. My gas guzzling truck needs a petroleum change and a fill up tomorrow, so I can go to work. I’ma going to the fillin’ station, 5AM and gittin my oil products, I hope it warms up, cause it’s fookin cold here in Kain-tuc.(-;)...
Naysayers must have short memories.
In the months right after president Bush signed the Energy Policy Act of 2005 food prices skyrocketed.
Milk jumped a doller or more a gallon.
Margerine doubled in price.
Butter almost doubled in price.
Cereals, eggs, meat, vegetable oils and almost every other food product jumped in price and they have never returned to previous levels.
The media was full of stories of beef producers and egg producers drastically cutting the numbers of livestock and chickens due to the high cost of feed.
ANOTHER SUBSIDY FOR NEBRASKA
Thank you, I remember how painful it was too and Republicans got all the blame for the prices. Bush bought nothing good with giving in on ethanol.
Remember the rice shortage panic in 2006??? (In reality we dont have price controls so we never had true shortages just higher prices.)
We already have WAY too much food, and WAY too much corn.
Come to think of it, we have always have WAY too much of what farmers produce.
See my tagline.
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