Stop The Corn Ethanol Subsidy

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The nation’s corn ethanol industry has received a big present paid for by livestock producers and all others who compete for corn on the open market.

It’s high time to do away with the Volumetric Ethanol Excise Tax Credit and the import tariff on foreign ethanol. These crutches, used to get the ethanol industry up and running, have done enough damage to other industrial users of corn.

U.S. ethanol plants now number 170 with 24 more in construction or expanding, according to the Renewable Fuels Association Web site. The plants are now located in 26 states. That does not sound like an industry that needs additional tax breaks or further protective tariffs.

As usual, when the government subsidizes any particular industry, effectively suspending market forces, others end up footing the bill. The government subsidies for the corn ethanol industry, on top of mandated production levels, place monumental pressure on pork and beef producers by forcing them to compete for corn against those who receive the subsidies.

Imagine for a minute that pork or beef consumption were mandated by the government and the ethanol industry was driven to huge financial losses. Who would want relief then?

Over the past few years, the ethanol industry’s appetite for corn has risen to its current consumption of approximately 33 percent of the U.S. crop which has led to unprecedented losses seen in the beef and pork industries.

Over the last 2 1/2 years, combined losses for the pork and beef industries have totaled more than $13 billion. The reason for the losses is higher production costs driven primarily by higher corn and soybean prices.

The National Pork Producers Council, the National Turkey Federation, the National Chicken Council, the National Cattlemen’s Beef Association, and American Meat Institute sent a letter to the House Ways and Means Committee last week summarizing the situation. Between 2005 and 2008, corn prices quadrupled, reaching a record high of more than $8 a bushel, according to the letter.

“The blender’s tax credit, coupled with the import tariff on foreign ethanol, has distorted the corn market, increased the cost of feeding animals, and squeezed production margins -- resulting in job losses and bankruptcies in rural communities across America,” the letter says. (Read the full letter.)

Currently, the EPA is deliberating an increase in the approved ethanol blend rate to 15 percent from its current 10 percent. If enacted, it could knock the livestock industries back another notch and end their current short-lived opportunity for profitability.

Meanwhile, ethanol production, and its demand for corn, continues at a record pace. Production increased 1.8 percent, to an average of 833,000 barrels per day in February, according to the Department of Energy. "Ethanol production continues to increase and that means more demand for corn," said Don Roose, president of U.S. Commodities.

No one will argue about the need for alternative energy sources. But, according to a 2009 U.S. Government Accountability Office report, the VEETC costs the U.S. Treasury between $4 billion and $6 billion annually in foregone revenue. It would make more sense if this money were applied to development and expansion of cellulosic ethanol.

The government subsidy now enjoyed by the corn ethanol industry should be shifted to cellulosic ethanol development exclusively. Preserving the $0.45 per gallon VEETC as well as a $0.56 per gallon production tax credit for cellulosic ethanol makes sense.

We should drop the government handout for corn ethanol and let the protective tariffs on foreign ethanol expire. Divert the revenue to expanding cellulosic ethanol production. It would benefit agriculture as a whole and help relieve the severe penalty paid by livestock producers. It also would benefit the nation’s renewable fuels objectives.

Source: Rick Jordahl, Pork Magazine



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