Ethanol and Arkansas
Arkansas corn farmers have rarely had it so good. I should know. Due to surging corn prices, our family farm in Independence County has been reporting profits unseen for some time. So are Americans eating more corn?
Well, no. The corn boom has been driven by demand for fuel, specifically ethanol. Problem is, it’s not consumers who are driving the demand. In 2005, Congress mandated that 7.5 billion gallons of ethanol be incorporated into the nation’s fuel supply. It takes about 21 pounds of corn to make one gallon of ethanol, so the ethanol mandate created an enormous new source of demand for corn. The increased demand caused the price of corn to rise rapidly, which is why Arkansan corn farmers have reason to love ethanol mandates.
Now, as part of its energy package, Congress is contemplating increasing the ethanol mandate to 36 billion gallons, or 20 percent of the nation’s fuel supply. To be sure, I have as much reason to support this measure as anyone—a five fold increase in the ethanol mandate would raise significantly the value of my farm assets. Nonetheless, I cannot bring myself to support an increased ethanol mandate because I cannot ignore the costs it would impose on all Arkansans.
For starters, an ethanol mandate poses a direct threat to the livestock industry, which is a significant part of Arkansas’s economy, especially the western part of the state. Currently, Arkansas ranks 19th, 17th and 2nd in pork, cattle and broiler production, respectively, in the nation.
Of course, livestock is fed with corn. Already, the 2005 ethanol mandate has increased the price of corn feed for chickens, cows and pigs. If Congress passes an increased mandate, feed would become even more expensive. Ultimately, these costs would be passed along to consumers in the form of higher prices for livestock products.
Basic economic theory teaches us that higher prices lower demand, which, in turn, contracts the market for the good in question. According to a report from Iowa State University, expanded ethanol production would decrease poultry production in America by 6 percent. Pork production would decline by 4 percent. An ethanol mandate may be great for corn farmers, but it would be horrible for the livestock industry. Should Congress be in the business of picking winners and losers?
Ethanol mandates also pinch consumers. Nationwide, prices of a number of staples are up because of the higher cost of corn feed. According to The Washington Post, beef prices have surged 5 percent, eggs are up 18 percent, and milk is 3 percent more expensive. Of course, the higher price of corn also affects the cost of America’s foremost sweetener, corn syrup, so consumers are paying more for products like soda and ketchup. It could get much worse: A higher mandate would mean even higher grocery bills.
Perhaps worst of all, an increased ethanol mandate would raise taxes. Ethanol enjoys many federal subsidies designed to promote its production. If you add up all the federal supports that would go into a 36-billion-gallon ethanol mandate, the total amounts to a quarter trillion dollars. Under the pay-asyou-go rules by which Congress operates, this money must come from somewhere, and that means higher taxes. That works out to $2, 000 for each household in Arkansas!
Ethanol proponents claim it will make America energy independent. The increased mandate, however, would only decrease oil imports by 11 percent, at a cost to taxpayers of $ 57 per barrel of oil “saved.” Ethanol also is portrayed as a cleaner fuel that emits fewer greenhouse gases than gasoline. In fact, replacing 20 percent of the nation’s fuel supply with ethanol would reduce America’s carbon footprint by a measly 1.6 percent. So much for ethanol’s purported benefits.
An increased ethanol mandate would raise taxes, increase grocery bills, and harm Arkansas’ livestock industry. Is it worth it?