The Biofuels Fiasco

A food versus fuel debate has raged for the past few years as ethanol consumes more and more of the U.S. corn supply. Ethanol will use about 40 percent of the U.S. corn crop this year, and for the first time ever, more corn will go into motor fuel production than into feed for livestock. As the National Cattlemen’s Beef Association has pointed out, since Congress mandated the use of ethanol in the nation’s fuel supply, corn use by ethanol mills has increased by 382 percent, yet with a limited supply of farmland and the need to grow other crops, plus some less than ideal weather conditions this year and last, corn production has increased only 5.4 percent over the same period. As a result, ethanol policy has been a major contributor to reduced red meat production. Per capita beef supplies for next year are projected to be at their lowest level since 1955. Food inflation is rampant​—​especially in categories where corn is a significant input. To date, poultry prices are up 3.4 percent over last year, milk and dairy is up 9.1 percent, pork is up 7.5 percent, and hamburger is up 10.4 percent. All categories are projected to increase even more next year. Moreover, the impact is not just domestic, as more than 60 percent of the world’s tradable corn supply originates in the United States. Food versus fuel is not the only market distortion caused by the federal mandate to use ethanol in the U.S. motor fuel supply. The federal regulations and mandates of what feedstocks may be used to make which biofuels are now creating chaos within the fuel sector​—​which hits motorists and taxpayers in the pocketbook, too. Consider that within the overall mandate that 36 billion gallons of ethanol be used for fuel by 2022, ethanol distilled from corn is limited to 15 billion gallons because of food versus fuel concerns. Despite already consuming 40 percent of the U.S. corn supply, corn ethanol has not yet hit its 15 billion gallon limit. Nonetheless, there still is more corn ethanol being produced than the market can absorb because of slackened motor fuel demand and a number of regulatory barriers. Federal support for the ethanol industry has resulted in an excess, and thus exportable, supply of ethanol. Sold politically just four years ago in the 2007 Energy Independence and Security Act as a means to secure domestic energy independence, subsidized American ethanol is now exported to Great Britain, Finland, and the Netherlands, helping them comply with biofuel mandates issued by the European Union...more