Tuesday, May 04, 2010

Livestock and ethanol subsidies

In a post from the Des Moines Register blog covering environmental issues, livestock producers recommend an end to ethanol subsidies:
“Although we support the need to advance renewable and alternative sources of energy, we strongly believe that it is time that the mature corn-based ethanol industry operates on a level playing field with other commodities that rely on corn as their major input,” the letter says.

“Favoring one segment of agriculture at the expense of another does not benefit agriculture as a whole or the consumers that ultimately purchase our products.”
But the ethanol industry disagrees:
Matt Hartwig of the Renewable Fuels Association fires back in an email: “Once again, corporate livestock interests are seeking … a return to the days they bought corn under the price of production for the American farmer. Such practices resulted in farmers getting more income from the government than they could from the marketplace, while corporate livestock industries prospered.”
A classic intersection of supply, demand, principle, and politics.

1 comment:

Ron Steenblik said...

But the livestock producers are not "seeking … a return to the days they bought corn under the price of production for the American farmer" -- at least that is not what they have been saying. What they have been calling for is an end to subsidies, and a tariff that protects domestic ethanol producers, that favor one end-use for grain (ethanol) over another (livestock feed). That is hardly the same as seeking to have corn sold below the cost of production.

I assume that the RFA is being ironic when they refer to the days when farmers got "more income from the government than they could from the marketplace" -- as if the derived demand for corn (now 1/3 of U.S. production) for ethanol -- which is driven by a government mandate, a blenders' subsidy and an import tariff on ethanol -- resembles anything like an unrigged market.

What the RFA should be saying to challenge the livestock producers is: "OK, are you prepared to also call to the end of all crop subsidies that encourage over-production, as well as subsidies for ethanol? Because, if that were to happen, the equilibrium price for corn would likely rise to a level that more closely reflects true production costs, which would be a lot higher than the old $2 per bushel you used to enjoy."