This is why Big Ethanol will fight to the death to fully preserve the Renewable Fuel Standard
posted at 4:41 pm on February 11, 2014 by Erika Johnsen
In a word: Monies. …Major. Cash. Monies.
Federal forecasters expect U.S. farm income to decline 26.6% to $95.8 billion this year, the lowest level since 2010, due to a sharp drop in corn and soybean prices.
The Department of Agriculture projected that U.S. net farm income would decrease due to an almost $11-billion decline in corn receipts and a decline of more than $6 billion in soybean receipts. Corn and soybean prices fell last year as U.S. growers harvested large crops, including the biggest U.S. corn crop in history.
Farm income last year was $130.5 billion, a nominal all-time high.
Farm incomes roughly doubled from 2006 through 2011 as rising global demand for grains and increased federal mandates for corn-based ethanol production drove prices higher.
To review: Via the Renewable Fuel Standard, the federal government incentivizes agribusiness to grow waaay more corn than America actually wants or needs by mandating that oil refiners blend a certain and annually increasing volume of biofuels into the nation’s gasoline and diesel supply (and I might add that agribusiness accomplishes this rent-sought feat by bringing more and marginal lands into production, helping to obliterate what we were once told were the manifold environmental benefits of corn-based ethanol).
So we end up with more corn than we even know what to do with, but when prices subsequently drop — which, in a sane and market-driven world, would be an excellent signal to stop growing so much corn — agribusiness need not fear because government crop insurance is there to shield them from prices that are “too low.” Why the agriculture sector is especially deserving of so much federal cushioning, I will never understand — and in fact, they’re probably less so than other industries, as President Obama openly acknowledged in his own FY 2014 budget proposal, via the Washington Post:
“The farm sector continues to be one of the strongest sectors of the U.S. economy, with net farm income expected to increase 13.6 percent to $128.2 billion in 2013, which would be the highest inflation-adjusted amount since 1973,” it pointed out. “With the value of both crop and livestock production at all-time highs, income support payments based upon historical levels of production can no longer be justified.” …
The bill expands crop insurance subsidies, which the president had targeted for reduction because of their wasteful, distorting impact on both the federal budget and farmers’ use of land, labor and capital. … Worst of all, it creates two new programs — Agriculture Risk Coverage and a Supplemental Coverage Option — which, taken together, all but guarantee beneficiaries’ revenues never fall below 86 percent of their earnings during years of high crop prices, according to estimates by Montana agricultural economist Vincent H. Smith. This federal largess is subject to no significant means-testing. In fact, people making up to $900,000 in adjusted gross annual income can qualify for payments. Why would a president concerned about inequality endorse such welfare for the prosperous?
But I digress, and anyhow, the agriculture lobby already won the crop-insurance fight for at least the next five years when President Obama signed the latest appalling rendition of the farm bill into law last week. (Ugh.) Back to the Renewable Fuel Standard: Big Ethanol really doesn’t want the artificially bloated demand for corn to be erased with a decrease in RFS requirements, because why should anyone have to back out of what has otherwise become an amply profitable industry when the federal government is there for the lobbying?
That’s why the EPA’s proposal to even just slightly back away from the requirements was such an unwelcome development for Big Ethanol, and why they’re doing everything in their power to try and — ahem — persuade the EPA to reevaluate that decision. The comment period on the rule change ended on the last Tuesday in January, so we should be finding out more soon.