Ethanol incentives don't fuel food costs, Senate told
Des Moines Register
Des Moines, IA
May 8, 2008
By Philip Brasher
Washington, D.C. - Rolling back federal incentives for fuel ethanol wouldn't have a major impact on grain prices unless all of the government support was eliminated, lawmakers were told Wednesday.
Even then, with oil prices as high as they are now, it would still be economical to turn corn into ethanol to augment gasoline supplies, said Bruce Babcock, an Iowa State University economist.
"Corn prices and gasoline prices are now inextricably linked," Babcock told the Senate Homeland Security and Governmental Affairs Committee.
"This link will not be broken unless ethanol production is somehow capped."
The ethanol industry is supported by three primary government incentives: a mandate that requires refiners to use an increasing amount of ethanol each year; a 51-cent-per-gallon tax credit for refiners that add ethanol to gasoline; and a 54-cent-per-gallon tariff on imported ethanol.
Rising food prices have spurred some in Congress to reconsider the new biofuel mandate that Congress passed in December. The mandate requires refiners to use 9 billion gallons of corn ethanol this year and 15 billion gallons each year by 2015.
"It may be that when it comes to ethanol and the increase in corn prices that we've met the problem and we caused it," said Sen. Joe Lieberman, a Connecticut independent who chaired the Senate hearing.
The governors of Texas and Connecticut and 24 Republican senators, including GOP presidential candidate John McCain, have proposed reducing the mandate to reduce grain prices.
But eliminating any of the three policies alone would have only a minimal impact on the price of corn, Babcock said. Doing away with all three of those would reduce the price of corn by 80 cents a bushel, he said.
"If you got rid of all the incentives, it would not have very much impact on the total quantity of ethanol that we're producing now," he said.
Economists say poor people in developing countries are especially vulnerable to rising crop prices because they spend more of their income on food and often rely heavily on basic grains.
"The commodity prices are the killer," said David Beckmann, president of Bread for the World, a Christian advocacy group.
Increased biofuel production is responsible for 30 percent of the higher cost of corn and other grains since 2000, said Mark Rosegrant of the Washington-based International Food Policy Research Institute.
He said rolling back all U.S. incentives for ethanol would be enough to "bring some children in developing countries out of hunger," he said.
Freezing biofuel production at 2007 levels would lower the price of corn by 6 percent in 2010 and 14 percent by 2015, he said.
