Yet another distortion to correct a distortion 3

Anybody who closely follows U.S. agricultural policy appreciates the journalism of Philip Brasher and his team at the Des Moines Register. One of Mr. Brasher's recent articles highlights a feature of the farm bill recently passed by the House of Representatives that probably few people have heard of: the "Healthy Oils Incentive Program."

According to the website of freshman Congressman Nick Lampson (D-Stafford, Texas) -- who recently underwent quadruple heart bypass surgery -- the Healthy Oils Incentive Program would create a "one-time incentive" to encourage development and commercialization of certain oilseeds and healthy oils to replace the use of trans fats in foods. Naturally, there is a connection here with biofuels.

Seed giants like Pioneer Hi-Bred International (a unit of DuPont) and Monsanto have for some time been working to develop a variety of soybean which yields an oil that won't produce artery-clogging trans fats when made into cooking oil for frying and baking. Because of the bad press that trans fats are getting, helped by the decisions of New York City and Philadelphia to phase out trans fats in restaurants, such healthier oils should command a good price premium.

And they do. Grain processors such as Cargill Inc. and Bunge Ltd. have been paying farmers a premium of up to 60 cents per bushel or more to grow the soybeans for them.

Farmers say that won't necessarily be enough. For one, the crops must be harvested and stored separately from other soybeans. And some farmers have found that the new varieties don't obtain yields as high as do conventional ones.

But as Brasher's article points out, what has really altered the market is "the new economics of ethanol and corn":

Demand for corn to make ethanol has driven up the price of both corn and soybeans. With soybean prices soaring, that extra 60 cents a bushel isn't as attractive as it used to be. "When soybeans were $5 a bushel a 10 percent premium is pretty significant. But when soybeans are $7 a bushel that premium is less of an incentive to go to all the extra management," said John Hoffman, a Waterloo farmer who is president of the American Soybean Association.

So, here we have another unintended consequence of the country's biofuel policy. Does that mean that we can expect Congress to stop subsidizing biofuels? Hell, no! Thanks to Rep. Lampson, the House-passed farm bill would provide an additional 30 cents per bushel in subsidies to farmers who agree to grow the new soybean variety!

Now, I would guess that many people would think paying farmers extra to grow a superior grade of cooking oil isn't a bad idea. But given that the higher opportunity cost to a farmer of growing the new variety is due to another set of government policies, is this madness or what? Has Congress now decided that it will micromanage the entire agricultural sector, and create a new subsidy for every product made more expensive by the diversion of crops into energy?

And on what evidence should anybody believe that this new program -- in contrast to almost every other federal agricultural program created -- truly will be "temporary"?

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