Moderated by Rick Badie
Gov. Nathan Deal and other governors want the EPA to waive requirements that a certain percentage of the nation’s energy comes from renewable fuels, notably corn for ethanol production. Why? Poultry and livestock farmers are paying higher prices for corn feed due to the drought. The debate: Should the nation’s corn crop, given the current market, be used to produce food or fuel?
By Mike Giles
The perfect storm that poultry and livestock producers have feared since the federal ethanol mandate was implemented in 2005 has arrived. The two elements of this storm are the Renewable Fuel Standard, which now devotes more corn to our gas tanks than to poultry, beef, dairy and pork combined, coupled with perhaps the worst U.S. drought since the 1930s.
For decades, the poultry industry has experienced up and down financial cycles. That is the nature of the poultry business, which contributes more than $20 billion annually to Georgia’s economy. Poultry industry leaders endured these times and built strong businesses without federal farm subsidies in an extremely competitive free-market environment.
Now poultry and livestock producers face the consequences of a drought of historical proportions while the federal government’s ethanol mandate, not market conditions, dictates how much corn is used for ethanol production. The Renewable Fuel Standard essentially mandates that private businesses blend a certain amount of ethanol into our nation’s fuel supply. It is no wonder that the amount of corn used for ethanol has increased 240 percent since the Renewable Fuel Standard was enacted by Congress in 2005.
While we believe the federal government’s ethanol policy is misguided, Congress was correct to enact into law a relief valve that allows for the mandate to be adjusted during a time of crisis. The waiver option was included because Congress foresaw that a time could come when the mandate might cause severe harm to the economy of a state, a region or the United States. It was this type of harm that Gov. Nathan Deal and seven other governors highlighted when they recently asked the Environmental Protection Agency to adjust the Renewable Fuel Standard for ethanol.
The severe economic harm we are talking about is not hypothetical or a warning of things to come. According to the University of Georgia, the state’s poultry producers spend an extra $1.4 million per day on corn since the drought took hold of the nation’s corn belt. Meanwhile, the Renewable Fuel Standard remains in force; each report released by USDA points towards an even more severe corn shortage during the coming year.
Last week, the ethanol industry said in a letter to President Barack Obama that waiving the Renewable Fuel Standard would have a minimal impact on grain prices and the amount of ethanol that will be produced in the coming year. Many experts disagree, but let’s say the ethanol industry is correct. Why wouldn’t our federal government, in an abundance of caution, use every tool at its disposal to protect an industry that has provided jobs for Americans and food for our tables for decades?
If the waiver option is not used in these extraordinarily severe circumstances, when will it ever be used? A one-year adjustment in the Renewable Fuel Standard is a reasonable request, and the Environmental Protection Agency should act quickly to avoid further economic harm to the vital food-producing sector of our nation’s economy.
Mike Giles is president of the Georgia Poultry Federation.
By Randall Doyal
The drought in the farm belt raises real fears about food supplies and prices. Some in the livestock, poultry and meat-processing industries are using the problems to attack the Renewable Fuel Standard, a government mandate which promotes the use of bio-fuels. Scrapping the standard won’t make it rain. Nor will it reduce corn prices or increase food supplies.
What if the federal government waived 100 percent of the standard during the upcoming 2012-13 corn marketing year? Economics professor Bruce Babcock of Iowa State University found that a 100 percent waiver might result in a 4.6 percent reduction in corn prices. Why so little impact? Even with the drought, the U.S. Department of Agriculture forecasts that this year’s corn crop will be the eighth largest on record. Ethanol stocks currently stand at 800 million gallons. Moreover, the Renewable Fuel Standard already provides flexibility for years when crops are short. Gasoline refiners can “bank” credits in years when they use more ethanol than the standard requires. In years like this, refiners can use these excess credits to comply with the standard. Right now, these “safety valves” are easing demand for corn for ethanol by nearly 14 percent.
There are three more reasons why American ethanol production has little effect on food supplies and prices:
First, ethanol production uses field corn, not the sweet corn that is grown for human consumption. Only one part of the kernel – the starch — is used for ethanol production, and the rest produces at least 33 million metric tons of livestock feed for cattle, hogs and poultry every year. That’s enough to provide every American with four quarter-pound hamburgers every week.
Second, 86 cents of every dollar spent on food pays for energy, transportation, packaging and other supply chain costs. Only 14 cents pays for agricultural costs, of which corn is only one.
Third, when it comes to global food supplies, U.S. ethanol production uses only 3 percent of the world’s grain supply. This year’s worldwide corn crop will be the second-largest ever. And in Africa and Asia, wheat and rice are much more important than corn.
While scrapping the standard won’t help food supplies, it would hurt the nation’s economy, the environment and energy security.
The American ethanol industry supports more than 400,000 jobs, generates $43 billion in economic activity and pays more than $8 billion in federal, state and local taxes. Americans’ family finances benefit from ethanol reducing prices at the pump by an average of $1.09 per gallon last year and 29 cents per gallon from 2000 to 2011.
On the environmental front, replacing gasoline with clean-burning biofuels reduces greenhouse gas emissions by 48 to 59 percent, according to a study published by Yale University’s Journal of Industrial Ecology. Because the U.S. produced 13.9 billion gallons of ethanol last year, we used 485 million fewer barrels of imported oil. That means we’re less dependent on unfriendly regimes.
Scrap the Renewable Fuel Standard? “If it ain’t broke, don’t fix it.”
Randall J. Doyal is CEO of Al-Corn Clean Fuel in Claremont, Minn.
By Emory Forrester
The USDA’s latest crop report showed the drought that is desolating the U.S. corn belt has destroyed a sixth of the country’s corn crop in just one month. Our carry-over stocks will be the lowest since 1994.
The drought has made a bad situation worse. Record high and extremely volatile grain prices have been the norm since the introduction of the Renewable Fuel Standard (RFS) in 2005, which mandates the amount of ethanol that must be blended annually in the United States. Today, 40 percent of our nation’s corn is burned in our gas tanks.
Chicken companies in particular are increasingly being severely impacted by the growing diversion of corn into fuel from government-mandated ethanol programs. Sixty percent of a chicken’s feed ration is made up of corn.
High, volatile corn prices since the RFS was enacted have greatly impacted our company’s cost of production. We have reduced our volume 15 percent per week since 2006.
Now, the current drought and unrelenting demand for corn by the ethanol industry has elevated the price of corn to the highest levels ever. Since June of this year, our cost of corn has increased by $1.2 million per week; and there has not been a corresponding increase in the price of chicken.
In an attempt to balance supply and demand, we will reduce our production even further.
We are not alone. According to the University of Georgia, the state’s poultry producers will spend an additional $516 million per year on corn due to the drought and the upward pressure on corn prices caused by the demand created by the RFS. These additional input costs are not sustainable.
Since 2006, we have reduced our employment by approximately 300 people. Our anticipated additional production cut will result in reduced hours and lower income for all of our 4,300 employees. There will be less money for them to spend at the grocery store and on life’s necessities. This will negatively impact our entire local economy.
In 2007, Congress gave the EPA Administrator the authority to waiv,e in part or in whole, the RFS requirement for just this situation. Due to the impact that RFS has on the availability of corn in this drought situation, we urge EPA to issue a full, one-year waiver for the RFS.
We are not asking for any government handouts. Fieldale Farms has been in business since 1972. Our employees are seasoned business professionals and can compete in the free market for the resources we need. We cannot compete against a U.S. government mandate that is impervious to price.
Emory Forrester is director of feed milling and delivery for Baldwin-based Fieldale Farms Corp.