Tuesday, October 07, 2008
Ethanol subsidies aren't chicken feed
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Charles Horn
Horn, a full-time farmer, lives in Mount Solon.
Several months ago, the U.S. Environmental Protection Agency had a golden opportunity to restore some degree of common sense to the nation's policy of mandating and promoting the use of corn as fuel for automobiles. But EPA blew its chance to curtail the ethanol mandate, which now costs taxpayers billions of dollars a year while driving up food prices for all consumers. It is now up to Congress to take a leadership role to end this policy. Given our current economic outlook, this taxpayer-subsidized fuel to nowhere needs to be cut from the national payroll.
I am a staunch believer in free enterprise, and I don't like to see the government promote policies that support one industry at the expense of another. Hundreds of farmers in Virginia, including me, raise chickens for major poultry companies. The ethanol mandate is putting intense cost pressure on these companies as well as on farmers. Sooner or later consumers will pay the price. The time to act is now.
Ethanol has pervaded our lives almost without anyone being aware. Originally, the fuel was added to gasoline because it was thought to help reduce air pollution. Recently, you may have seen signs at gasoline pumps that say things like: "May contain up to 10 percent ethanol." Most of us are now running our cars on a blended fuel known as E10. It has been shown to be less efficient than gasoline, but politicians have seized on ethanol as a home-grown substitute for petroleum.
In 2007, Congress created a policy that ensured demand for corn-based ethanol will continue to grow by leaps and bounds over the coming years. The federal Renewable Fuels Standard mandates the amount of corn-ethanol produced grow from around 5 billion gallons in 2006 to 9 billion gallons in 2008 to 15 billion gallons by 2015. Since it wouldn't actually pay to turn that much corn into alcohol as a gasoline additive, Congress also tacked on a tidy subsidy to entice the fuel companies to buy into the plan. As a result, taxpayers pay gasoline refiners several billion dollars a year to blend ethanol and gasoline, and they will continue to do so through at least 2010. Additionally, Congress has slapped a tariff on imported ethanol of 54 cents per gallon to dampen competition in the market.
These ethanol policies are not foolproof. In fact, it has been shown that producing this much ethanol has had many detrimental effects on our economy. Today, I have serious concerns about the financial health of my company. Here's why: Corn makes up the majority of the cost of feed for livestock and poultry. The chickens I raise for George's Inc. eat more than six pounds of corn each, along with soybean meal and other ingredients milled into nutritious feed. We don't have any alternatives; there aren't enough other crops to feed the billions of chickens and turkeys and millions of head of cattle raised in this country every year.
Because of the newfound demand for corn from the ethanol industry, however, the price of the commodity has shot up. Corn was selling for less than $2.50 a bushel when the ethanol boom got rolling two years ago. This spring, corn went to nearly $8 in speculative frenzy. The price of corn has since settled back down to around $6 per bushel, still a high price on an historical basis. The cost of feed is the biggest single expense in raising chickens. Having that cost more than double in two years makes it hard to stay in business.
Companies and farmers can't absorb these high costs forever. Thousands of workers in our nation's livestock and poultry sector have lost their jobs already. Eventually, one way or the other, we will all pay the price for the federal government's misguided policies. Ethanol interests say that consumers should be happy to foot the bill because it is helping to reduce our dependence on foreign oil. Yet ethanol accounts for only a tiny fraction, 4 percent this past year, of our fuel supply. Even at the peak of the mandate, ethanol will offset only about 10 percent of total gasoline supply. For this, we'll pay nearly $7 billion per year and lose more than 40 percent of our corn crop to run our cars.
Congress should act now to restore common sense to energy policy and let the free market handle the allocation of corn. And if the incumbents won't do it, let's elect someone who will.
