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US study urges reform on corn ethanol production

By Carina Perkins , 24-Jul-2012

US study urges reform on corn ethanol production

US livestock and poultry producers are urging the government to take action over corn ethanol production, which they claim is destabilising feed prices.

A coalition of groups representing the industry – including the American Meat Institute, California Dairy, the Milk Producers Cooperative, the National Cattlemen’s Beef Association, the National Chicken Council, the National Pork Producers Council and the National Turkey Federation – has asked politicians to reform the federal Renewable Fuels Standard (RFS), which mandates the amount of ethanol that must be produced a year,

The coalition cited a new study by Thomas Elam PhD, the president of consulting firm FarmEcon, which revealed that the use of corn for ethanol production rose by 300% between 2005 and 2011, reaching 5bn bushels, which is more than 40% of the US annual corn supply. This caused corn prices to jump to more than $6 a bushel in 2011, up from $2 in 2005, pushing up feed prices.

The study also revealed that production of corn ethanol has not resulted in a reduction of oil imports, because ethanol is not price-competitive compared to gasoline. It stated that oil imports have declined because of increased domestic crude oil production, rather than increased ethanol production.

“The increases we’ve seen in commodity prices are strongly associated with the RFS mandate,” said Elam. “At the same time, we haven’t seen the promised benefits on oil imports or gasoline prices. This means that while Americans are forced to pay more for food, they are also not seeing lower prices at the pump; it’s a lose-lose situation.”

The report concluded that the RFS should be revised, so that incentives for ethanol production are reduced when corn stocks are expected to reach critically low levels.

Based on this finding, the coalition stated its support for the proposed ‘Renewable Fuels Standard Flexibility Act’, which would require a biannual review of corn stocks, with the RFS falling in line with corn stocks. For example, if the ratio falls below 10%, the RFS would be reduced by 10%, and if it fell below 5%, the RFS would be reduced by 50%.

It warned that without such a policy, the livestock industry could be facing serious problems. “The recent spike in corn prices prompted by drought conditions in much of the Corn Belt has analysts predicting the US will run short of corn this summer,” it said.

“Another short corn crop would be extremely devastating to the animal agriculture industry, food-makers and foodservice providers, as well as consumers.”

The RFS, which was first introduced in 2005, will this year require 15.2 billion gallons of ethanol to be produced. The Standard is currently being reviewed by the Senate Biofuels Investment and Renewable Fuels Standard Market Congressional Study Group.

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