If the United States reduced the amount of corn required for its ethanol requirements by just one per cent, it would double Zimbabwe’s entire annual corn consumption and save American taxpayers $50 million a year.
Bill Lapp, a U.S. market analyst, tossed those statistics out at the annual GrainWorld conference in Winnipeg last week to illustrate the magnitude of his government’s program to convert grain into fuel.
The impact of ethanol on U.S. corn production is staggering, said Lapp, president of Advanced Economic Solutions in Omaha, Nebraska.
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ETHANOL MANDATES
Ever since Washington mandated ethanol blends in gasoline and diesel fuel as an oil-saving measure, corn acreage has increased dramatically.
In 2002-03, U.S. demand for corn was 9.5 billion bushels requiring 74 million acres. Ten per cent of that was for ethanol.
This year, the demand base is 13.5 billion bushels, 36 per cent of it for ethanol, requiring 92 million acres of corn, Lapp said.
Virtually all the increase stems from a 2007 federal energy security act decreeing biofuel mandates to produce cleaner-burning fuels and, ostensibly, to reduce U.S. dependence on imported oil.
The U.S. Environmental Protection Agency has mandated 12.6 billion gallons of ethanol (4.9 billion bushels of corn) during 2011, along with 800 million gallons of biodiesel (15 per cent of U.S. soybean oil supply). EPA’s ethanol mandate for 2015 is 15 billion gallons.
As incentives to produce biofuel, manufacturers receive tax credits of 45 cents a gallon for ethanol and $1 a gallon for biodiesel, thus boosting the price of commodities in the bargain.
The U.S. also levies tariffs on biofuel imports, further keeping domestic prices artificially high, said Lapp.
HIGHER CORN PRICES
The increased demand for ethanol has dramatically raised corn prices, dragging other commodities along in their wake. Last year, corn futures had nearly doubled from around $3.50 a bushel to over $7.
Without ethanol, the price of corn today would be $3.20 a bushel, $2.20 lower than it is now, Lapp said.
He said U.S. ethanol policy isn’t the only reason for escalating world food prices. A weaker U.S. dollar also contributes to a bullish commodity market.
But it is a factor, he said during his talk titled “Driving on an Empty Stomach.”
“Creating havoc in the food market is not the way to solve our energy problems,” he told a GrainWorld luncheon audience. “Should we feed the world or should we drive our cars with ethanol?”
During a question period, Stuart Clark, Canadian Foodgrains Bank senior policy adviser, said the U.S. food aid program since its inception in 1954 has been linked to removing surplus commodities from the market.
Now that corn is used to produce fuel, Clarke wondered if the U.S. ethanol program will take food away from hungry people overseas.
“Will commodities go to ethanol instead of food aid?” he asked.
Interviewed later, Lapp said chances of a reversal in U.S. ethanol policy are slim.
WASTEFUL
It’s true that environmental groups, food manufacturers and some livestock producers oppose ethanol policies as costly, wasteful and ineffective, he acknowledged.
But Lapp added the biofuel lobby is so powerful that U.S. politicians are unwilling to oppose it.
Also, the first battleground in the U.S. round of presidential election primaries is Iowa. No presidential candidate would dare campaign against ethanol in the heart of the U.S. corn belt, he said. [email protected]
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“Creatinghavocinthe foodmarketisnot thewaytosolveour energyproblems.”
– BILL LAPP
