Why agribusiness giants are facing off over corn ethanol 3

As recently as 2005, a buck fifty could get you a bushel of corn -- about three days' rations for a confined dairy cow. Today, that same bushel would run you nearly $4.

Trouble in Big Ag paradise.

Photo: iStockphoto

That rapid price increase, inspired by a slew of federal policies that encourage transforming corn into ethanol, is rippling through the global food system, jacking up food prices and squeezing low-income people throughout the world.

The situation has given rise to a renewed "food vs. fuel" debate. The discussion plays out something like this: You either support cheap corn, and thus a food supply that serves the world's vast poor population, or you support the ethanol boom, whose goal is to "break our dependence on foreign oil."

But these terms of debate merely mimic a growing rift within the agribusiness lobby. If we accept them, we risk reinforcing the centrality of industrial corn -- an environmentally and nutritionally suspect product -- in supplying our food and fuel.

King Corn's Divided Subjects

A blunt recent report by The Wall Street Journal's Kimberley Strassel outlines the growing rift within the agribiz lobby over ethanol. (The article is locked behind the subscription gate, but a useful summary recently appeared on Gristmill.)

Strassel writes that when corn was cheap and way overproduced -- as it has been for most of the past 30 years -- the entire agribusiness lobby rallied around the ethanol cause. What did it matter to feedlot meat powerhouses like Tyson and Smithfield if corn traders like Archer Daniels Midland made a tidy profit from turning corn into fuel, with a major assist from the government?

"But now that ethanol is literally taking food from their beasts' mouths, much of the [feedlot meat] community has grown less friendly," Strassel writes. Tyson execs have been complaining bitterly about corn prices for a while now. Its CEO recently told the Journal that elevated grain prices, which he explicitly linked to ethanol, would add $300 million to the company's costs this year.

And the National Cattlemen's Beef Association is raising its voice as well. For decades, the politically powerful group has joined Archer Daniels Midland in lobbying hard for the farm subsidies that help keep corn cheap. Suddenly, the group finds government intervention into ag markets distasteful. According to Strassel, the group has demanded "an end to any government tax credits [subsidies] for ethanol and an axe to the import tariff on foreign ethanol." She saltily adds: "Put another way, the cattlemen are so angry that they are demanding free markets and free trade -- a first."

Strassel reports that the growing rift in the agribiz lobby is flummoxing the politicians who cater to it. Presidential hopefuls still feel compelled to mouth platitudes in favor of the allegedly "green fuel" that's going to free us from the clutches of Middle East oil barons, but underneath the public rhetoric, reflexive support for corn-based ethanol is starting to wane.

Legislators continue to issue bill after bill mandating ever-increasing ethanol use, but a funny thing is happening, Strassel reports: More and more of them are quietly capping the amount of corn that can be used, in an attempt to spur the use of other feedstocks (although cellulosic technologies, needed for rival feedstocks like switchgrass, remain commercially unviable, even with loads of government subsidies).

In short, Strassel writes, "the shine is off corn ethanol, and oh, what a comedown it has been." Now, that doesn't mean that corn ethanol is going away -- just that its explosive growth appears to have peaked.

False Choices

That's all to the good. The corn-based ethanol boom, a completely government-contrived phenomenon, never had a shot at significantly reducing petroleum use. By all accounts, its energy-saving potential over gasoline is thin -- if not imaginary. Corn ethanol has always been a fake -- and dramatically expensive -- stand-in for real energy-conservation policy.

Although I support any and all efforts to halt the runaway train that is corn ethanol, I fear that the backlash plays into the hands of Tyson and its peers, who hate ethanol because it interferes with the business model of feeding cheap corn to confined animals.

They may well get their wish. Last fall, spurred by high corn prices, U.S. farmers scrambled to plant corn anywhere they could -- on idle land, on land devoted to other crops like soybeans. This summer, provided there's no major weather disaster, they will likely harvest the largest corn crop in U.S. history.

If Congress pulls back support for ethanol, the corn price will likely tumble. Lower prices will mean a windfall for feedlot operators like Tyson -- and will likely spur a slew of government commodity payments to corn growers under the farm bill.

We'll be back where we started: with our government using our tax dollars to prop up corn production.

In essence, we're being asked to choose between low-quality food and low-quality fuel. We should reject both. Let's demand an end to policies that place industrial corn at the center of food and fuel production alike.

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