With USDA estimates of this year's corn yield tightening, some groups are wondering if offering incentives for grain-based ethanol production is the right way to go.
In a press conference Thursday, agricultural economist Thomas Elam, president of FarmEcon, LLC and Congressman Bob Goodlatte (R-Va.) said that lower yields could create a demand disaster when combined with the Renewable Fuels Standard.
The RFS legislation, which took effect in 2005, will require that 15.2 billion gallons of ethanol are produced this year. Livestock groups and opponents of the RFS say that mandate is driving the cost of corn up, therefore inflating the cost to livestock producers and the cost to consumers.
Elam, author of "The RFS, Fuel and Food Prices, and the Need for Statutory Flexibility," said the RFS has done little to secure price stability for grocery staples. Poultry, meat and dairy products have been hit hard by price inflation.
Elam explained that these food prices have risen dramatically post-RFS legislation, despite other economic factors, and he warned that subsidizing grain production for ethanol will only make matters worse.
Rep. Goodlatte took Elam's warning and introduced two bills that could alter the RFS, one of which will completely eliminate the RFS and the other will reform it.
"There are real concerns about having enough corn supply to satisfy the RFS and the needs of our food producers," Goodlatte said. "We should not be in a position where we are choosing between fuel and food."
The bill, titled "Renewable Fuels Standard Flexibility Act" (H.R. 3097), is sponsored by Rep. Goodlatte and Rep. Jim Costa, (D-Calif.). It would require a biannual review of ending corn stocks relative to their total use, and if the ratio is under 10%, 7.5%, 6%, or 5%, the RFS would be reduced by 10%, 15%, 25%, or 50%, respectively.
"The RFS has not provided relief for consumers at the pump," Goodlatte said. "Legislation like mine would offer benefits to all corn users."
Ethanol Proponents Speak Out
The food vs. fuel debate isn't anything new to the agriculture industry, but in times of drought the conversation seems to really heat up, and proponents of ethanol production say this year's corn yields shouldn't be creating so much alarm.
The National Corn Growers Association says the RFS works and even in times of lower yield and drought conditions, it still makes sense.
"While it is true that our corn crop is suffering, it's still in the field. We won't know the actual size of the 2012 corn crop until months from now. In the meantime, the market is working," said NCGA President Garry Niemeyer in a statement Thursday.
He said market signals are changing production and exports of ethanol, and current surpluses will reduce demand for the 2012 corn crop. Further, Niemeyer thinks making changes to the RFS now would ensure that consumers pay higher fuel prices.
"When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes. It's working. The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline," Niemeyer said.
Growth Energy also expressed concern about drought's effect on media coverage of the food vs. fuel debate.
The group's CEO Tom Buis said livestock groups are using the drought to spread misinformation and an attempt to blame ethanol production for rising food prices. But, he says, the rise in prices is only because of poor weather and existing higher energy costs.
"Factors related to energy, and in particular, oil prices, such as the transportation, storage, processing and packaging of goods are the true culprits of rising food costs. Additionally, marketing expenses add to the rising costs of food," Buis said.