Foresight on Food Politics: Three facts about the ethanol fuel standard

Facts about ethanol fuel standard

Atop news that consolidation was occurring in the ethanol-refining business, as two Nebraska ethanol plants went on the block as part of bankruptcy proceedings against Abengoa Bioenergy, Investor's Business Daily marked the 11th anniversary of the federal Renewable Fuel Standard with an editorial from the oil industry demanding its end. Signed into law by President George W. Bush as part of the Energy Policy Act of 2005, the Renewable Fuel Standard requires refiners to blend increasing amounts of biofuels into new options for consumers at the pump. Despite sparking billions of dollars in U.S. investments and helping reduce dependence on foreign oil, the RFS remains an obviously complex and contentious issue, as the IBD editorial testifies. Clarity around RFS is important to retailers not only because of the implications for grocer's food costs, but also because of questions of whether ethanol mandates increase or decrease the cost of the gasoline most grocers now rely upon for sales or rewards programs.

The National Corn Growers Association would caution grocers a lot of over-simplifications have been tossed about by media and critics of biofuel production. For example:

  • It's not true ethanol is robbing livestock producers of feed. Yes, roughly 40 percent of U.S. corn is processed for ethanol, as the IBD editorial notes. But fully one-third of that total then comes back into livestock feed as ethanol byproducts. If you take those feedstocks out of the equation, only 30 percent of the crop went into ethanol last year; meanwhile, 47 percent of the crop goes to livestock feed in the United States. And when you count the corn that the United States exports, of which about 80 percent is used by livestock, in reality about 57 percent of the total yearly corn supply ends up eaten by livestock.
  • Relatively high corn price did not cause massive food price increases."Because half the nation's corn production is now being refined into ethanol," IBD's Texas-based oil institute author argues, "consumers are paying higher prices for beef, milk, poultry and pork." But in November 2015 testimony to Congress, the Congressional Budget Office argued food prices would be unchanged whether the RFS was continued or repealed. CBO estimates the 2017 increase in demand for corn under the RFS statute may raise the average price of corn by about 3 percent. However, because corn and food made with corn account for only a small fraction of total U.S. spending on food, that total spending would increase by only about 0.1 percent. When it comes to food manufacturers who use corn directly in their products, even a doubling in corn price from $4 per bushel to $8 per bushel would only add about 6 cents to the price of a box of corn-based breakfast cereal.
  • Ethanol-based demand has actually helped grow, not shrink, the corn supply. And it has done so without pulling more acreage into production. The corn growers association argues that without the demand boost provided by the EPA standard, farmers would have potentially chosen a different crop than corn for an estimated 11 million acres last year. But because they did plant that corn, the additional corn that's been grown benefits all corn buyers, including the food and livestock industries. Meanwhile, according to a study in the Biomass and Bioenergy Journal, increasing ethanol demand was met not by bringing idle land into corn production, but instead by U.S. crop intensification. In other words, using technology and management, farmers got more corn out of the same amount of land, contradicting the oft-repeated theory that any acre of farmland used to produce biofuels in the United States results in "sodbusting" unfarmed land and forests in other areas of the world.

Says Chip Bowling, president of the National Corn Growers Association, "Thanks to innovation in U.S. agriculture, we are growing more crops on less land than we cultivated when the RFS was first enacted.”

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