Daschle Bashed on Corn as Biofuel

♠ Posted by Emmanuel in at 9/21/2007 02:45:00 PM
Former US Senate Majority Leader Tom Daschle (D-South Dakota) recently wrote an article in Foreign Affairs favoring the use of (subsidized) corn as a biofuel with few downsides. In particular, he responded to a previous article by University of Minnesota professors Ford Runge and Benjamin Senauer critical of using corn as a biofuel, especially its potential to raise food prices for the poor. (Already, the FAO suggests this is happening.) In this most recent feature, Runge and Senauer reply to Daschle. For me, their comments are right on the money, though do re-read the original Runge / Senauer article as well to get a handle on the substantive points:

Senator Tom Daschle's comments reflect his longtime commitment to promoting corn-based ethanol as a member of Congress and now as a lobbyist for the ethanol industry. Whatever our differences with him over biofuels, they are not about politics; we supported his last race for senator from South Dakota. Nor are our differences due to a lack of familiarity with agriculture. We have spent careers in Minnesota analyzing agricultural trade and its impact on the environment and on markets for food. Finally, we agree with Daschle that corn-based ethanol will be at best a partial solution to our current energy needs.

But we disagree with Daschle on four of his points: that U.S. corn is fed mostly to animals with few implications for people, that the conversion of corn into biofuel is an efficient way to reduce the United States' dependence on foreign oil, that higher grain prices will help farmers in food-deficit nations, and that the current corn-based ethanol industry will be a platform for the next generation of biofuels, which will be made from cellulose and waste materials.

First, we, too, know that meat-producing animals eat more than half of the U.S. corn crop. But people do eat chicken, eggs, pork, steak; drink milk; and consume foods containing cornmeal, corn oil, and corn sweeteners. U.S. consumers spend over 20 percent of their food budgets on meat, eggs, and dairy. And the share of the corn crop used to produce ethanol will rise from less than ten percent in 2004 to an expected 20-25 percent of the crop next year. As more acres are devoted to corn, fewer acres are available for other types of dairy feed, such as alfalfa, or for table vegetables, such as green beans. As a result, milk and vegetable prices are rising. And as acres are bid away from soybeans and turned over to corn, the price of soybean-based feed is also increasing, adding to the pressure on meat prices. In March 2007, the U.S. Department of Agriculture forecast that demand for ethanol would push the prices of poultry, pork, and beef higher. The Wells Fargo economist Michael Swanson noted in June 2007 that the rising costs of corn and soybean feed also "have a direct and significant impact" on "oils, cereals and bakery products." Corn-based ethanol, Swanson concluded, "is indeed responsible for the increased rate of food inflation" (even though it is not its sole cause).

Second, even if every single one of the roughly 90 million acres in the United States devoted to growing corn goes into ethanol -- leaving none for feed, exports, or other uses -- corn-based ethanol would meet only 12-15 percent of the country's transportation fuel needs. Hence, ethanol's contribution to reducing U.S. dependence on foreign petroleum today is marginal at best.

Third, higher grain prices are translating into an increase in the prices of staple foods around the world. For some, this effect could be another way beside trade liberalization to raise the incomes of poor farmers. But the ethanol boom's distorting effects on commodity prices are hardly a substitute for expanded market opportunities for farmers in food-deficit nations. By definition, a food-deficit nation buys more food than it sells and hence is negatively affected by price increases. Most of the three billion people living on less than $2 a day are subsistence farmers with little or no surplus to sell or urban slum dwellers who consume but do not produce food. As consumers, they lose. Higher prices may induce more grain production abroad, but unless wealthy nations agree to import this grain by granting expanded market access to poor producer nations, it will be of no help to them. Finally, as the need for corn for ethanol production cuts more and more into U.S. corn exports, the United States is increasingly trading an export in which it has a tremendous comparative advantage (corn) for a product in which it has a comparative disadvantage (ethanol), especially vis-à-vis Brazil. This disadvantage is precisely the reason the United States has a 54-cent-a-gallon ethanol import tariff.

Fourth, Daschle's argument that corn-based ethanol will be a platform for cellulose- and waste-based fuels is undercut by three observations. For one thing, although cellulose from switchgrass holds promise, who will plant it while the price of corn is above $3.50 or more a bushel, as it is now? U.S. corn growers and the ethanol industry did not spend 30 years paying the campaign bills of members of Congress such as Senators Daschle and Bob Dole (both of whom now lobby for ethanol at the same firm) in order to give away the store to grass producers. If, moreover, the rapid technological development of cellulosic alternatives is to be promoted without "me too" subsidies matching those given to the corn-based ethanol industry, then the incentives currently favoring corn-based ethanol (such as tax credits, import tariffs, and production mandates) should be lowered. Giving huge grants to noncompetitive biomass production, rather than investing in basic research and development for conservation and renewable sources of energy, only pays down the cost of the inefficiency of that biomass.

On August 9, 2006, Senator Daschle noted in a speech before the American Coalition for Ethanol that advocates of corn-based ethanol "have always been acting more in the national interest than in self-interest." In truth, the ethanol industry is a textbook example of how agriculture and industry combine to influence Congress into transferring taxpayer and consumer dollars to wealthy and influential special interests.