Thomas Dobbs is Professor Emeritus of Economics at South Dakota State University, and a W.K. Kellogg Foundation Food & Society Policy Fellow.
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American agriculture is becoming addicted to corn-based ethanol, and the economic and environmental effects of this addiction call for some intervention!
The explosive growth in U.S. ethanol production from corn is having worldwide ramifications. December 6 articles in The Economist ("Cheap no more" and "The end of cheap food") trace the impacts of ethanol production on prices of other crops and on food. Rising crop prices can benefit farmers not only in the U.S., but also farmers who have marketable surpluses in other countries.
Many consumers, however, are hurt by the rising food prices. This is especially true of urban and landless rural poor in developing countries. According to The Economist's food-price index, food prices have risen in real (inflation-adjusted) terms by 75 percent since 2005. International Food Policy Research Institute data cited by The Economist indicates "the expansion of ethanol and other biofuels could reduce caloric intake by another 4-8 percent in Africa and 2-5 percent in Asia by 2020."
The growth in ethanol production is hardly a market phenomenon. According to The Economist, Federal subsidies for ethanol production already come to over $7 billion a year. Moreover, many previous years of cheap corn that resulted from Federal farm program subsidies helped lay the economic foundation for ethanol plants already built or under construction.
Implications for energy and farm policies?
What are the policy implications of this "food versus fuel" conflict that past and present energy and farm policies have created? As far as the ethanol industry is concerned, its interests trump all other interests, including those of taxpayers and the poor who can least afford higher food prices.
With rising corn prices over the past year squeezing ethanol industry profit margins, plans for some new ethanol plants have been canceled or delayed. Having eagerly rushed to expand production and put in place more plants than can probably operate profitably in the near future, the industry has undertaken an all-out lobbying effort to get the federal government to raise mandates for ethanol blending. The U.S. House of Representatives recently obliged, when it passed a new national energy bill on December 6 that would double the nation's corn ethanol production by 2015.
Also, it seems quite likely at this point that Congress will pass a new farm bill that continues to be friendly to producers and users of corn. The traditional subsidies for corn and other commodities (especially soybeans, wheat, rice, and cotton) will probably remain in place. The House of Representatives version of the farm bill passed on July 27, and the Senate appears near to passing its version.
Although some of the commodity subsidy payments (the counter-cyclical and marketing loan types) will be very low or nonexistent over the next several years if commodity prices remain high, the so-called "direct payments" would continue under the House-passed farm bill.
Direct payments averaged have averaged approximately $5.2 billion per year under the 2002 farm bill. Real farm policy reform would involve shifting all of this into conservation or rural development programs. The best place for that money would be the Conservation Security Program, which will become part of the new Comprehensive Stewardship Incentives Program if Senate Agriculture Committee Chairman Tom Harkin's proposal is enacted by the Senate and agreed to by the House.
Without fundamental reforms of the commodity payment system, American agriculture will remain on its chemical-intensive, narrowly focused path. Biodiversity, which already is almost nonexistent in much of the Corn/Soybean Belt, will continue to be lost. Plant biodiversity is fundamental to almost every dimension of agri-environmental quality, including landscape attractiveness, bird life, and soil and water quality.
The expansion of corn acreage to accommodate ethanol production has come in large part at the expense of other crops. U.S. farmland planted to corn in 2007 was up by more than 14 million acres over 2006; land planted to soybeans declined by more than 11 million acres to accommodate much of that increase. This implies an increase in the production practice of corn-following-corn. Although the standard Midwest corn/soybean rotation is pretty weak from a biodiversity standpoint, it at least beats corn-following-corn!
Environmental problems associated with intensive corn production have been amply documented over the years. Recent reports have focused specifically on the environmental implications of expanding corn production for the ethanol industry.
Concerns about soil fertility, and chemical fertilizer and pesticide contamination, are raised in The Rush to Ethanol: Not All Biofuels Are Created Equal (PDF), by Food & Water Watch and Network for New Energy Choices in collaboration with Institute for Energy and the Environment at Vermont Law School. According to this report, abandoning crop rotation to raise corn year after year "will necessitate increased amounts of chemical fertilizers, which will also increase runoff and the deterioration of water quality."
The National Research Council recently released summaries and the "Prepublication" report (Water Implications of Biofuels Production in the United States) of the findings of its Committee on Water Implications of Biofuels Production in the United States. The NRC committee also raises concerns about water quality due to the potential for fertilizer and pesticide runoff. The committee's report contains a discussion of possible policy measures to help reduce adverse water quality consequences of ethanol production. Briefly mentioned is the possibility of more stringent conservation "cross-compliance" regulations than those currently in existence for farmers to qualify for commodity price supports and other farm program subsidies.
Time to start controlling the ethanol addiction
On December 11, the Senate rejected the Lugar/Lautenberg amendment to the pending farm bill. That amendment would have phased out most of the commodity program subsidies and transferred the savings to an expanded revenue insurance program and to conservation, biofuels, and nutrition programs. The $5.2 billion in annual direct payments to farmers would have been phased out by 2014.
And then, on Dec. 14, the Senate passed a farm bill that preserves the basic commodity payment structure now in place. Although it is too late for new amendments at this time, I propose that Congress revisit the farm bill at the earliest possible opportunity and amend the conservation cross-compliance provisions to deny direct payments to farmers who plant corn on the same fields in successive years.
Denial of direct payments for farmers who abandon the most minimal of crop rotations -- such as the corn/soybean rotation -- would not mitigate all of the severe environmental problems we are facing with major expansion of corn-based ethanol production. However, such a denial would be one small signal of major environmental concerns. This new cross-compliance provision would at least place a modest limitation on one of the many subsidies driving the ethanol addiction, with all its associated adverse consequences for the environment and world food prices. It would provide some disincentive to one of the worst agricultural practices resulting from corn-based ethanol production.
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Comments
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justlou Posted 9:37 pm
14 Dec 2007
Environmental Working Group Report
EWG did a very good study related to this post:
'Trouble Downstream: Upgrading Conservation Compliance'
http://www.ewg.org/reports/compliance
Among the findings:
*The standards only apply to Highly Erodible Land (HEL) which leaves out a large percentage of lands still subject to erosion.
*Standards are very flexible.
*Monitoring is incredibly limited to less than 1% of the HEL lands.
*Monitoring is very lax in finding only about 2% of lands out of compliance.
*Of those 2% out of compliance of the less than 1% monitored, about 80% of these are overturned during appeals.
Bottom line is that we cannot expect the USDA to set any meaningful standards or even enforce the weak ones in place. There have been so few enforcement applications that the "stick" of losing farm subsidy payments for lack of compliance is a tremendous joke.
The high costs of farming, and the high cost of fuel along with technological improvements in farm machinery and tillage equipment have done far more to reduce soil erosion than any regulations coming out of Washington. I don't think we should let the farmers off the hook on this for there are serious soil erosion and water degradation problems remaining. But unless we make a serious stab at reforming the federal agencies (USDA, NRCS, FSA) responsible for setting standards, monitoring, and enforcing, these agencies will continue to effectively look the other way as farmers do what ever the hell they want to, continue to suck the public teat, and scream like hell if government attempts to get serious about regulating the farm industry.
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Ron Steenblik Posted 1:56 am
15 Dec 2007
Greetings, Professor Dobbs!
I couldn't agree more with your assessment of the situation. As I am sure you already know, the EU's cross-compliance regulations also include standards for crop rotations.
You cite the The Economist magazine as saying that Federal subsidies for ethanol production already come to over $7 billion a year. Actually, The Economist was itself quoting our study, "Biofuels--At What Cost? Government Support for Ethanol and Biodiesel in the United States - 2007 Update" (Geneva: Global Subsidies Initiative of the International Institute for Sustainable Development), which can be downloaded from our website for free. The previous year's study can be found here.
And the estimate includes some (as much as we could count) state-level subsidies, as well as federal subsidies.
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Thomas Dobbs Posted 2:19 am
15 Dec 2007
Biofuels, at what cost?
Thanks for calling the original source of The Economist's data in this regard to my attention and to Gristmill's readers. Yes, having spent a good deal of time in Europe the last several years, I am familiar with the CAP cross-compliance regulations, but thanks for making that connection.
Tom
Thomas L. Dobbs Professor Emeritus of Economics, South Dakota State University, and W.K. Kellogg Foundation Food & Society Policy Fellow
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Thomas Dobbs Posted 2:24 am
15 Dec 2007
Enforcement of conservation cross-compliance reg's
Your points are all well taken. But we can't just give up on cross-compliance, at least so long as the commodity subsidy system remains in place--as it will for at least this next farm bill. And we need to add new restrictions, particularly with respect to continuous cropping of a crop like corn.
Tom
Thomas L. Dobbs Professor Emeritus of Economics, South Dakota State University, and W.K. Kellogg Foundation Food & Society Policy Fellow
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Sam Wells Posted 2:25 am
15 Dec 2007
Great post
Many folks also miss the subtext that Democrats wished to balance any increase in subsidies with increases in taxes, a process known as "Pay-Go" ... all of which Bush has vetoed because he doesn't like taxes. So, for what, 7 billion or whatever in handouts, the President just added perhaps 14 billion in debt. Whoops, was the pork left in the Farm Bill as well? Great going, Prez!
That's in direct cash, baby, and few people have taken a close look at indirect costs of soil erosion and downstream water pollution. Many of the secondary-tier impact studies such as UN and EU focussed on negative impacts in terms of less protein per capita in developing countries (cost margin and avoidance method). But I can also say, that because of the same policies, the price of tortillas in Mexico have nearly tripled. Whoa, that's considered a developed country, isn't it?
I'm surprised there aren't riots in the streets.
Onward through the fog
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Ron Steenblik Posted 3:05 am
15 Dec 2007
On food riots
Sammie writes, "I'm surprised there aren't riots in the streets." Ah, but there have been. As described in this article in The Guardian:
There have also been street protests in Italy (over the price of pasta), and shoppers' riots in China, in one case recently leading to several people being crushed to death:
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justlou Posted 6:15 am
15 Dec 2007
Re: Tom, regulations
"we need to add new restrictions, particularly with respect to continuous cropping of a crop like corn."
Tom, I'm pretty certain your proposal would not help much.
For one, farmers need to adapt to markets with more cropping flexibility than this kind of regulation would permit. If the markets are screwed up due to ethanol subsidies, we need to attack that at the source.
Second, from strictly a soil erosion perspective, continuous corn, coupled with minimum tillage, probably results in less soil erosion than a corn/soy rotation which leaves far less protective soil cover following soybeans. More nitrogen fertilizer is needed in a continuous corn system so there does remain the chance for higher nitrogen runoff and drainage into waterways.
Lastly, the more I learn about how poorly current regulations are being administered I question whether adding more regulations would be effective. Of course, the Bush administration has done every thing it can to undermine the authority of many agencies and it would require a concerted effort to restore them to a meaningful level of functionality. But, I have also had first hand experience with some of these agencies and find that they are extremely ossified by rigid bureaucracy and turf battles among competing agencies. I am not at all certain that it is worth attempting to reform them.
If we do not recognize that Washington is a huge part of our troubles and keep looking in that direction to solve many of our problems we will continue to be deeply disappointed. In this respect I can relate to conservative, small governmnent arguments. But they use this argument to undermine agency authority to suit their interests. Perhaps we do need to think about streamlining government to boost agency authority to better suit our interests. Is it any wonder that this was one of Al Gore's primary efforts while he was vice president? There are big elements of federal and state government that should get the deep six while transfering their wasted capital to the areas that need strengthening.
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Thomas Dobbs Posted 3:12 am
16 Dec 2007
More on conservation compliance regulations
Of course, if there is no enforcement, it won't make any difference what the cross-compliance regulations are. "Justlou" suggests that maybe "small government" is a better way to go, rather than add more reg's. But we don't have "small government" when we have the Federal government poring out billions of dollars every year under the farm commodity programs. As long as that kind of "big government" continues, it is imperative that the public insist on reasonable conservation in return. The 1985 Federal farm bill was the breakthrough policy legislation in that regard. As the EWG report points out, there are a lot of problems with meaningful enforcement of the conservation compliance reg's at this time. But the solution is not to abandon the cross-compliance reg's, but to strengthen them and put in place an Executive branch that really wants to enforce them. With the current President, there is probably not much hope of meaningful enforcement of environmental reg's in agriculture or any other sector.
A cross-compliance regulation prohibiting continuous corn would actually be fairly easy to enforce, if there is government will. Every farm receiving commodity subsidies should be required to file a rotation plan. Obviously, weather and market conditions necessitate some flexibility when it comes planting time. But unlimited flexibility should not be allowed: back-to-back planting of corn on the same field should not be allowed. Farmers would be required to report what is planted on each field, and spot checks could be done to monitor for violations of this corn-following-corn prohibition.
I don't like to be put in the position of defending the Midwest's corn/soybean rotation. As I said in my post, this is not much of a rotation (from an ecological perspective), but it does beat continuous corn. I don't believe I' ve ever met an agronomist who would advocate continuous corn over a corn/soybean rotation--from an ecological perspective--except possibly some agronomists with vested interests, such as ones working for GM seed and chemcal input industries. Yes, continuous corn does excist as a production practice, propped up by GM seeds and other technologies. But ecology and history tell us that agriculture based on monoculture usually is not sustainable. Insect and weed resistances build up, requiring ever more exotic chemicals, genetic engineering, etc. It's a great game for those industries and researchers who make their living by trying to keep ahead of nature. But, ultimately, it is a game that can not be won. In the long run, nature wins out and demands biodiversity.
I think we need a national conversation about what kinds of rotations, generally, should be allowed for farmers receiving commodity subsidies. Corn-following-corn should just be the start of that conversation. Probably soybeans-following-soybeans should not be allowed, either.
Let the conversation begin. What about other crop systems across the country?
Tom
Thomas L. Dobbs Professor Emeritus of Economics, South Dakota State University, and W.K. Kellogg Foundation Food & Society Policy Fellow
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