EPA's Corn Ethanol Quotas Could Spell Death for Cattle Farms
August 3, 2012 6:44 PM
President Obama's administration fears losing key swing states if it drops corn farmer-friendly quotas
It's a painful memory etched into many chapters of American history -- selling the farm. But amid a
many farmers fear that may be precisely what will happen. But unlike past farm failures, this one may come not solely from nature, but from the government's
decision to artificially inflate
corn prices by
mandating corn ethanol production
I. Corn Ethanol - Pork 101
It's hard to understand why corn ethanol fuel in the U.S. has stuck around for as long as it has.
Unlike a handful of nations (i.e. Brazil), the U.S. lacks the resources to supply all its fuel needs with sugary food-crop ethanol. Thus, unlike those nations U.S. automakers have been largely unable to sell pure-ethanol vehicles to consumers. That's a game killer for corn ethanol, as it means that consumers pay more at the pump using ethanol than they would using gas as mixed-fuel engines
lack the fuel efficiency
advantages of pure ethanol engines.
The federal government has funneled billions in handouts to the corn lobby. [Image Source: AP]
Then there's the economics -- corn is a food crop, so using it as a fuel source
drives up prices
on everything from snack foods (corn syrup) to beef (cows eat corn feed). Finally, there's the environmental issue. One of the big goals of the alternative fuels movement is to
emissions of carbon and noxious (nitrogen or sulfur containing) gases. But studies have shown corn ethanol actually
leads to higher emissions
Corn ethanol's strange status in the U.S. perhaps began when corn producers seized on the experimental fuel as a means of bumping the billions they already received in government subsidies even higher. During the Bush and Obama administrations, the corn lobby opened its checkbooks to many members of Congress, and in exchange reaped a multiplier in the form of billions of grants and subsidies for corn ethanol -- all on taxpayers' dime.
Perhaps most significantly, the federal corn supporters authorized the EPA to mandate all fuel sold to contain a certain percentage of ethanol -- in essence forcing all Americans to pay for corn ethanol, even if it was
bad for their cars
and not something they wanted.
II. Quota Remains Last Major Handout to King Corn
As part of the government's embrace of corn ethanol, the
Energy Independence and Security Act of 2007
(EISA) -- passed by Congress and signed into law by President George W. Bush -- mandated a series of ever-increasing production targets to be
U.S. Environmental Protection Agency
(EPA) (a slightly ironic duty consider there was strong evidence corn ethanol
the environment). The idea among corn producers who backed the bill leaning on the candidates they "funded" was ostensibly that this would force future Congresses to commit to ever-increasing subsidies.
But after the recession, public backlash against wanton government spending led to Congress
cutting corn ethanol's subsidies
. But Congress did not bother to overturn the EPA's emissions targets.
Cattle farmers fear they could go under if corn prices stay artificially high. [Image Source: Texas Vox]
While cutting the subsidy, but leaving the quota might seem like adding insult to injury, corn producers were actually happy (mostly) that the quota remained. The quota created higher artificial demand, driving up prices. That artificially elevated demand has helped the corn industry weather the recent droughts, as corn prices have risen 60 percent.
But while that may have saved big corn's profits in a year which otherwise would have been disastrous, the damage has essentially been passed along to livestock producers.
Mike Deering, a spokesman for the
National Cattlemen's Beef Association
, says his organization has pleaded with the EPA to temporarily cut targets to alleviate already drought elevated corn prices made even higher by artificial ethanol demand. He
, "Our ears are open and the line of communications is open, [but] we do not have any definitive news at this point and time."
III. Trading Higher Food Prices for Votes
Perhaps this is a case of reaping what you sow, but amid pleas from livestock farmers there's not a drop of relief in sight. The issue lies with how the EISA is structured.
While the EPA has the power to temporarily reduce production quotas, it must receive that request from states or ethanol refiners. An ethanol trade group -- the
Renewable Fuels Association
-- said it "wouldn't be surprised" to see such a request, but none has come yet. The issue is that corn demand actually helps corn farmers, refiners, and corn-producing states.
Currently about a third of corn is used to make ethanol, another third goes to livestock feed, and the remaining third is sent for human consumption either as a vegetable or in various food additives (corn syrup, corn starch, etc.).
The cattle industry warns, "The drought-induced reductions in the corn supply means that the mandated utilization of corn for renewable fuels will so reduce the supply of corn and increase its price that livestock and poultry producers will be forced to reduce the size of their herds and flocks, causing some to go out of business and jobs to be lost."
One problem is that supporting corn ethanol has held the key to Presidents Bush and Obama wining crucial swing-state battlegrounds.
In 2008 President Obama won three of the four largest corn producing state -- Iowa, Minnesota, and Illinois. He also won other swing states with large corn growing regions, including Michigan, Ohio, and Wisconsin. Support of ethanol earned President Obama and other regional politicians key support -- both financial and in votes. Unsurprisingly politicians in these regions and the President are key supporters of corn ethanol.
Corn ethanol supporters were key to President Obama winning battleground states in 2008.
[Image Source: Wikimedia Commons]
Meanwhile the states who are hurt the most by the quotas -- livestock states like Texas -- are regions where President Obama holds little hope of winning electoral votes.
Of course, there is a risk that supporting government inflation of corn prices could backfire. Outside of corn producing states who directly benefit from higher corn prices, voters in other swing states might look to punish President Obama and the backers of big corn if failing livestock and higher food corn prices could drive up costs of meat and many dry foods.
For now, though, the quota stands.
"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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