Ethanol and corn
Corn ethanol is a miserable thing to subsidize. Agricultural economists are against it. Burning an essential foodstuff in cars instead of putting the money towards alternative energy research is politics run amok.
Ethanol and corn
Published: October 13 2010 15:16 | Last updated: October 13 2010 20:13
The rising trend in grain prices has been credited to a surge in protein demand, while this summer’s spike was weather related. But neither Chinese carnivores nor Russian droughts are responsible for the latest bit of upward momentum – the culprits are in Washington.
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Under pressure from powerful agricultural lobbyists, the US Environmental Protection Agency will allow the percentage of ethanol in gasoline to rise as high as 15 per cent from the current 10 per cent. Ethanol already consumes a third of America’s corn crop, the world’s largest by far, and a 2007 energy bill mandates that the US steadily increase biofuel use from the current 14bn to 36bn gallons by 2022. The burden falls almost entirely on corn ethanol, thanks to steep import tariffs on cheaper alternatives. But without the increase in the proportion of ethanol in gasoline, the industry’s growth would be constrained by the “blendwall”.
Corn prices are already up by a third year-to-date, a two-year high, while US stockpiles are approaching a 14-year low, so the Obama administration’s timing is inauspicious for consumers. It is politically astute though, coming three weeks before tough mid-term election races in the farmbelt. An impressive coalition of engine manufacturers, environmentalists and meat producers opposed the move: bad for cars, ecology and the cost of food. They won just a partial reprieve – only cars made after 2007 will be cleared to use the higher blend for now.
Corn ethanol has gone from economic boondoggle and environmental travesty to being a catalyst for food price inflation. There are many reasons to limit the distortions ca