NCPA - National Center for Policy Analysis

Ethanol vs. the World

August 15, 2012

In 2007 and 2008, food prices spiked, resulting in much higher U.S. grocery bills and far more hunger in the poorest countries as the global supply chain buckled. The world may now be on the cusp of a 2012 reprise amid the drought in the Midwest farm belt, the worst in 50 years. Luckily, there are plenty of simple, modest things Washington can do to alleviate and even prevent another crisis. The problem is that these fixes are opposed by a minor industry -- ethanol -- that adds little if any value to the economy, says the Wall Street Journal.

  • The U.S. Department of Agriculture (USDA) recently downgraded its 2012 corn forecast by 13 percent from last year's crop, to 10.8 billion bushels.
  • That would be the shortest harvest since 2006, even though the acreage planted with corn rose 4 percent since last year and is the highest since 1937.
  • Scorching temperatures and little rainfall have left only 24 percent of the crop in good or excellent condition in the 18 major corn belt states, down from 72 percent in June.
  • These represent the largest month-to-month potential declines in grain yields since the USDA started to keep records.
  • Also on Friday the USDA's world agricultural outlook board estimated that global corn consumption will be off by 38.9 million tons, with the U.S. problems responsible for three-fourths of the shortage.
  • The gap is likely to presage climbing basic-food commodity prices -- corn futures are up nearly 50 percent over the last six weeks.

Corn is also a key ingredient in the combine of political power and corporate welfare that is U.S. alternative energy policy.

  • The food-to-fuel mandate is known as the Renewable Fuels Standard (RFS) and requires 13.2 billion gallons of ethanol to be blended into the gasoline supply this year and 36 billion gallons by 2022.
  • These quotas are fulfilled almost entirely by corn ethanol.
  • Four of every 10 bushels in 2011 went into the stuff.

If not for the politics, the ethanol mandate would have been gone years ago. Oil costs and imports are up (ethanol makes up less than 1 percent of worldwide transportation fuel), and even the green lobby has turned against the fuel (because of the carbon-increasing deforestation it causes).

Source: "Ethanol vs. the World," Wall Street Journal, August 13, 2012.


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