Corn for Food, Not Fuel
By COLIN A. CARTER and HENRY I. MILLER
Published: July 30, 2012
IT is not often that a stroke of a pen can quickly undo the ravages of
nature, but federal regulators now have an opportunity to do just that.
Americans’ food budgets will be hit hard by the ongoing Midwestern
drought, the worst since 1956. Food bills will rise and many farmers
will go bust.
An act of God, right? Well, the drought itself may be, but a human
remedy for some of the fallout is at hand — if only the federal
authorities would act. By suspending renewable-fuel standards that were
unwise from the start, the Environmental Protection Agency could divert
vast amounts of corn from inefficient ethanol production back into the
food chain, where market forces and common sense dictate it should go.
The drought has now parched about 60 percent of the contiguous 48
states. As a result, global food prices are rising steeply. Corn futures
prices on the Chicago exchange have risen about 60 percent since
mid-June, hitting record levels, and other grains such as wheat and
soybeans are also sharply higher. Livestock and dairy product prices
will inevitably follow.
More than one-third of our corn crop is used to feed livestock. Another
13 percent is exported, much of it to feed livestock as well. Another 40
percent is used to produce ethanol. The remainder goes toward food and
beverage production.
Previous droughts in the Midwest (most recently in 1988) also resulted
in higher food prices, but misguided energy policies are magnifying the
effects of the current one. Federal renewable-fuel standards require the
blending of 13.2 billion gallons of corn ethanol with gasoline this
year. This will require 4.7 billion bushels of corn, 40 percent of this
year’s crop.
Other countries seem to have a better grasp of market forces and common
sense. Brazil, another large ethanol producer, uses sugar instead of
corn to make ethanol. It has flexible policies that allow the market to
determine whether sugar should be sold on the sugar market or be
converted to fuel. Our government could learn from the Brazilian
approach and direct the E.P.A. to waive a portion of the renewable-fuel
standards, thereby directing corn back to the marketplace. Under the
law, the E.P.A. would first have to determine that the program was
causing economic harm. That’s a no-brainer, given the effects of sharply
higher grain prices that are already rippling through the economy.
The price of corn is a critical variable in the world food equation, and
food markets are on edge because American corn supplies are plummeting.
The combination of the drought and American ethanol policy will lead in
many parts of the world to widespread inflation, more hunger, less food
security, slower economic growth and political instability, especially
in poor countries.
If the E.P.A. were to waive the rules for this year and next, the
ethanol industry and corn farmers, who have experienced a years-long
windfall, would lose out. Wheat and soybean farmers would also lose,
because the prices of those crops have also been driven up: corn
competes with soybeans for acreage and is substituted for wheat in some
feed rations.
Any defense of the ethanol policy rests on fallacies, primarily these:
that ethanol produced from corn makes the United States less dependent
on fossil fuels; that ethanol lowers the price of gasoline; that an
increase in the percentage of ethanol blended into gasoline increases
the overall supply of gasoline; and that ethanol is environmentally
friendly and lowers global carbon dioxide emissions.
The ethanol lobby promotes these claims, and many politicians seem
intoxicated by them. Corn is indeed a renewable resource, but it has a
far lower yield relative to the energy used to produce it than either
biodiesel (such as soybean oil) or ethanol from other plants. Ethanol
yields about 30 percent less energy per gallon than gasoline, so mileage
drops off significantly. Finally, adding ethanol actually raises the
price of blended fuel because it is more expensive to transport and
handle than gasoline.
As the summer drags on, the drought is only worsening. Last week the
International Grains Council lowered its estimate of this year’s
American corn harvest to 11.8 billion bushels from 13.8 billion.
Reducing the renewable-fuel standard by a mere 20 percent — equivalent
to about a billion bushels of corn — would offset nearly half of the
expected crop loss due to the drought.
All it would take is the stroke of a pen — and, of course, the savvy and the will to do the right thing.
