Thomas Dobbs is Professor Emeritus of Economics at South Dakota State University, and a W.K. Kellogg Foundation Food & Society Policy Fellow.
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.