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Washington Examiner


Pork Barrel Ethanol Subsidies Have Doubled Corn Prices

August 10, 2011

By Robert Bryce

Last month, with Washington mired in the debt ceiling battle and facing a potential default, public disapproval of Congress reached a record 82 percent.

That figure might have been a little lower had Congress succeeded in solving another long-festering issue: putting an end to the massive subsidies being given to the corn ethanol scam. Alas, it was not to be.

In early July, it appeared that a bipartisan group of senators had come up with a plan to end the 45-cents-per-gallon subsidy almost immediately rather than wait for it to expire, as planned, on Dec. 31.

But that deal never passed both houses of Congress. The result: $6 billion in annual subsidies are still being given to an industry that is helping drive up food prices during the worst recession in modern history.

So the ethanol industry will continue getting subsidies while gobbling up gargantuan quantities of corn, which, in turn, is increasing the cost of food at the grocery store at the very same time that huge numbers of Americans are unemployed and/or collecting food stamps.

The official U.S. unemployment rate stands at 9.1 percent, but the actual rate of underemployment (known as the SGS rate) may be closer to 23 percent.

Furthermore, 45.7 million Americans -- about 14.6 percent of the population -- now rely on federal food stamps. Since October 2008, the number of Americans relying on food stamps has jumped by 48 percent (that’s 14.9 million people) and enrollment in the program has increased for 32 consecutive months.

And yet -- and yet -- Congress just couldn’t find time to cut ethanol subsidies, even though at least 17 studies, including those by Purdue University, the World Bank, and the Congressional Research Service, have exposed the link between increasing ethanol production and higher food prices.

The most recent study came out in mid-July, during the height of the debt ceiling battle. Funded by the Farm Foundation, a centrist nonprofit group based in Illinois, the report, “What’s Driving Food Prices in 2011?” concluded that America’s corn ethanol mandates have created a “large, persistent and non-price responsive demand for corn.”

Authored by three agricultural economists from Purdue University, the report says that “there is little doubt that biofuels play a role in the corn price level and variability, and this has spilled over into other commodity markets.”

Today, about 40 percent of all U.S. corn -- that’s 15 percent of global corn production or 5 percent of all global grain -- is diverted into the corn ethanol scam in order to produce the energy equivalent of about 0.6 percent of global oil needs.

Corn prices, now close to $7 per bushel, have more than doubled over the past two years. And recent harsh weather, including floods in the Midwest and drought in the South, will likely mean a subpar U.S. corn harvest.

That, in turn, will mean yet higher prices for corn, which will translate into higher prices for meat, milk, eggs, cheese and other commodities.

“Livestock producers, restaurants, food manufacturers and consumers at the grocery store are all being penalized by this profligate biofuel policy,” said Bill Lapp, president of Advanced Economic Solutions, an Omaha, Neb., commodity consulting firm.

“We are already at about $7 for corn. It’s an absurd number for livestock producers to pay. But we may soon see prices in excess of $8,” he said.

In January, Peter Brabeck, chairman of the world’s biggest food company, Nestle, declared that using food to make biofuels is “absolute madness.”

Congress, are you listening?

Original Source:



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