WASHINGTON – Federal ethanol production mandates have increased and destabilized prices for corn, wheat and soybeans, according to a new economic study on the impact of corn ethanol production on food and commodity prices.
In response to the study, groups representing the livestock and poultry industry called on Congress to reform the Renewable Fuels Standard, which established ethanol production levels. The coalition is urging reform of the RFS and supports the study’s conclusion that the mandate should allow automatic adjustments to reduce incentives for ethanol production when corn stocks are forecast to reach critically low levels.
Thomas Elam, president of FarmEcon LLC, an Indiana agricultural and food industry consulting firm, conducted the study, which was funded by the American Meat Institute, California Dairy Inc., the Milk Producers Cooperative, the National Cattlemen’s Beef Association, the National Chicken Council, the National Pork Producers Council and the National Turkey Federation.
“The increases we’ve seen in commodity prices are strongly associated with the RFS mandate,” Elam said. “At the same time, we haven’t seen the promised benefits on oil imports or gasoline prices. This means that while Americans are forced to pay more for food, they’re also not seeing lower prices at the pump; it’s a lose-lose situation.”
The study found that:
• Ethanol added about $14.5 billion, or 10 cents a gallon, to motorists’ fuel costs in 2011 because its energy cost is higher than gasoline and because of its negative effect on fuel mileage.
• Increased ethanol production since 2007 has had no effect on gasoline production or oil imports.
• Corn used for ethanol production rose 300 percent from 2005 to 2011, increasing from 1.6 billion bushels to 5 billion. (Ethanol production now uses more than 40 percent of the US annual corn supply.)
• Corn now represents about 80 percent of the cost of producing ethanol compared with 40-50 percent before the mandate.
• Corn prices increased to more than $6 a bushel in 2011 from $2 in 2005.
• The rate of change for the Consumer Price Index for meats, poultry, fish and eggs increased by 79 percent while it decreased by 41 percent for non-food items since the RFS was revised in 2007.
• Ethanol production costs and ethanol prices have all but eliminated a market for ethanol blends higher than 10 percent.
• The US exported 1.2 billion gallons of ethanol in 2011.
The coalition supports the “Renewable Fuels Standard Flexibility Act” (H.R. 3097), sponsored by Reps. Bob Goodlatte, R-Va., and Jim Costa, D-Calif. The bill would require a biannual review of ending corn stocks relative to total use. If the ratio falls below 10 percent, the RFS could be reduced by 10 percent. If it falls below 7.5 percent, the mandate could shrink by 15 percent; below 6 percent, it could be reduced by 25 percent; and if the ratio falls below 5 percent, the ethanol mandate could be cut by 50 percent.