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U.S. Locked Into Ethanol Growth

The U.S. government has few options to slow down the ethanol boom that has played a big role in drawing down corn supplies to their lowest level in 15 years, a top U.S. Agriculture Department official said Feb. 10.

“The fact is the industry has pretty much been built,” USDA chief economist Joe Glauber told reporters on the sidelines of a Commodity Markets Council conference. “This isn’t a question of just saying ‘cut it off.’ It’s much more complicated than that.”

Government mandates, tax incentives and an upturn in profit margins during the past year make ethanol attractive to produce, he said.

More than 90 per cent of U.S. gasoline is blended with ethanol, according to the Renewable Fuels Association. About 13.5 billion to 13.7 billion gallons of ethanol are expected to be produced this year.

Glauber said U.S. ethanol production was a major factor in tightening supplies of corn, used widely in processed foods, animal feed, cooking oil and in foreign food aid. USDA on Wednesday slashed its forecast for corn stockpiles by nine per cent to the lowest levels since 1996.

Critics argue that, as food prices soar, the government should take action to curtail ethanol output.

Senator Dianne Feinstein of California said through a spokesman she was working on legislation to trim incentives on ethanol. “Federal subsidies and tariffs for ethanol are wrong for our fiscal policy and wrong for the environment, and rising commodity prices are another indicator of that,” she said.

With federal ethanol mandates already in place, however, Glauber said, there was not much that can be done in the short term to force firms to stop making ethanol.

Federal law requires that billions of gallons of ethanol be blended in gasoline each year. This year the ethanol mandate is set at about 13 billion gallons.

The Environmental Protection Agency has authority to issue waivers to cut the federal ethanol mandate, if it determines that the mandate would severely harm the economy of a certain state or the entire country.

But even this action might not completely limit ethanol output in some cases, Glauber said.

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