[1]This summer has been warmer than average. Living in Minnesota, the Midwest is known for being tolerable of all kinds of weather, but this summer has been unique. One of the hardest-hit commodities, corn, is playing a critical role in our food chain and even more so, our pocket book.
I am a city gal who grew up in a small farming community, and when I dial back home, many farmers are in fear and apprehension of how long last years corn yields will last, due to the brutal 2012 summer drought. This year’s crop yield is on track to be the worst in 15 years, and corn prices have already hit record high levels. Almost 90% of the United States’ corn crops are in despair, according to the U.S. Department of Agriculture [2].
Farmland Fuery and Abusing Bureaucracy in Crisis
You may have been aware that Congress has been on the brink of passing a pork-filled farm bill within the last months. Bureaucracy and special interest creep in for the best interest of the farmers, which means in reality it’s not a farm bill for the farmers after-all. If passed, the real drought will be forced on taxpayers with a trillion dollars worth of bad agriculture policy [3], while locking in increased food stamp spending. Did you know that 80% of this farm bill is made up of food stamps? I do not see how this helps the farmers [3]in a drought, or not!
Taxpayers and our free-market cannot afford to expand the federal government’s role in the business decisions of agricultural enterprises. As a small business owner, I could not imagine being encouraged to engage in expansion or risk in this economic climate, and then expect the taxpayers to bail us out if we fail.†This is Kleptonomics not True Capitalism.
Enter The Renewable Fuel Standard: Emergency Legislation and Justification
President Bush signed a renewable fuel mandate in the Energy Policy Act in 2005 and increased in 2007 in the Energy Independence and Security Act. This expansion was for the effort to reduce dependence on foreign oil, promote biofuel use, and stabilize transportation fuel prices, reduce greenhouse emissions, among other goals [4]. The mandate requires the production of 20.5 billion gallons of renewable fuel in 2015 increasing to 36 billion gallons in 2022. The mandate also required 16 billion gallons of cellulosic biofuel to be produced by 2022.
Government Creating Value ….Corn for Cars
The ethanol movement has been glorified and positioned as a way to reduce greenhouse gas emissions and reduce our use of imported oil. This is crazy considering the fact that it takes more energy to produce ethanol than that fuel supposedly saves [5]. Scientific research suggests that some corn-based ethanol production may actually increase carbon dioxide emissions rather than reduce them. According to a study published in Science by the Nature Conservancy and the University of Minnesota, many biofuels emit more greenhouse gases than gasoline. According to the researchers [6], these biofuels may produce “17 to 420 times more carbon dioxide than the fossil fuels they replace.â€
Let’s be clear on the motive, nearly 40 percent of the corn harvest is to meet Obama’s “green†strategy to win votes. Once again, the taxpaying citizen suffers in a forced trade of higher taxes, higher fuel, and shooting grocery bills.
Another Layer Wrapped in Green Red Tape
The ethanol mandate increases the cost of food and has not proven to make a dent in reducing greenhouse gas emissions. Pressuring the market even more, the EPA forces refiners to pay a fine for not achieving cellulosic ethanol targets.
The ethanol industry claims that the corn and feed prices are minimally impacted by the RFS, the free market producers claim just the opposite as feed costs are rampant. Producers are asking for the hand of the EPA, regulators and the Government to unlock and to immediately consider amending the RFS to help ease the pressure it is placing on the supply of corn for food, and to help reduce the cost to consumers.
Taxing refiners and what these programs are costing you and I
The CBO reports [7] that it cost taxpayers $1.78 per gallon for ethanol made from corn and $3.00 for cellulosic ethanol.
To expose the waste, inefficiency and bureaucratic punishment here, the refiners were required to pay about $6.8 million in penalties for not blending enough cellulosic ethanol into gasoline in 2011.
This is inefficiency because cellulosic producers did not sell a single gallon of cellulosic ethanol commercially in 2010 and 2011.
This is waste because the EPA has mandated that refiners blend even more cellulosic ethanol in 2012.
EPA now requires refiners to blend 8.65 million gallons of cellulosic ethanol or they pay the EPA millions of dollars in fines. Who picks up the rewards of bureaucratic punishment? The EPA -for picking an unrealistic number, therefore the EPA increases the fines it receives. This also means you and I will be paying higher gasoline prices [8].
So ethanol is one more bad idea of mercantilism “amuck†that benefits its politician and growers, but gives little value for you or I, the consumer and customer.
Shucked Corn Trade
One of my clients works with Minneapolis based Cargill, a global grain trading powerhouse. She has been predicting the unbalanced trade for some time as her global co-workers joined the chorus that the U.S. government should temporarily curb its ethanol quotas. To make the situation worse, U.S. agricultural companies are importing corn from Brazil for the first time [5]. This greatly hurts the American economic trade.
Countries such as Japan, Korea and Taiwan are turning elsewhere for new suppliers because of skyrocketing prices and tight supply. America exports 50 million tons of corn [5](15% of its crop) and Japan is America’s top buyer, importing 14 million tons, followed by Mexico, Korea, Egypt and Taiwan. Now, they all will have no choice but to turn to other corn producers such as Brazil, South Africa, China and Argentina to get their corn.
“Cargill CEO Gregory Page said on CNBC that the U.S. biofuel mandate ‘needs to be addressed’ through existing policy tools, becoming the highest-profile executive to call for some relief [9] from the Renewable Fuels Standard that requires that over a third of the corn crop is made into fuel ethanol.â€
When will this government stop trying to pick winners and losers? Much like the alignment with Solyndra and other green companies, Obama is in the business of propping up the democratic vote by joining King Corn in a struggling economy.
From Burnt Corn Field to a Level Playing Field
It is time for our federal government to learn from it’s many past mistakes. That starts by Congress putting practicality, agriculture, and energy on a level playing field by killing unnecessary subsidies and backdoor regulatory mandates.
We have a summer storm of invested political interest, the most severe drought since the 1930’s, shifting trade, and unnecessary restrictions when it’s clear the nation’s corn crop is in a state of crisis. The present and next Congress must address the bureaucratic impact of politics by waiving the ethanol mandate now, getting a clear picture of the long term Farm Bill, and solidifying a free market economy to win and lose on a level playing field.