Within what may be termed "mainstream" agriculture, there are two schools of thought when it comes to ethanol: (A) it's wonderful, and (B) it's wonderful, but we simply must do something about that high price of corn. There are many factors at play here, and there is no doubt that ethanol will not be the salvation of the family farmer and rural communities, as is so often portrayed. Additionally, there are some real international concerns about the food vs. fuel issue. Those, along with the many other issues, are topics for another day. Today, I am going to allow myself a bit of a rant on those that run around promoting school of thought (B).
This leads me to an article I ran across last week regarding the Conservation Reserve Program. CRP is quite possibly the single most successful conservation program ever, and it essentially consists of paying farmers to take environmentally sensitive land out of production. Farmers usually sign 10 year contracts to participate in CRP, and if they withdraw early they must pay substantial penalties. And now several agricultural groups (mostly livestock types) want USDA to let farmers plant crops on land currently enrolled in the Conservation Reserve Program without paying the aforementioned penalties:
A number of agricultural groups have been calling on U.S. Agriculture Department officials to allow planting on CRP lands without penalties.
Kendall Keith, president of the National Grain and Feed Association, says that's the best way to solve a looming problem. Keith believes the ethanol boom is going to keep pushing up demand for corn -- and land to grow it on.
"Where's the land going to come from? If we're not going to let the CRP land come out, then the U.S. is going to have a difficult time competing in export livestock markets where we've seen growth in the past. And we simply need the grain to be competitive," Keith says. [Full Article Here]
Though not explicitly stated, it is obvious that the whole goal of this push is to drive down the price of corn, which currently is at a level that actually provides a profit to the producer. For the first time in about 10 years. Shocking, I know.
It is abundantly evident that the consumers of cheap corn- primarily the livestock, dairy, and food processing sectors- have received far more of the benefit from farm bill commodity programs than commodity producers have (See this Darryll Ray article for more). It's not hard to figure out- if a purchaser buys a bushel of corn for $2 that costs $3 to produce, they essentially "gain" a dollar. And if the government steps in to keep the producers of that $2 corn in business indefinitely, the people buying it will receive that $1 subsidy (or more) indefinitely as well. And then think about export markets. In the past, we have exported millions of bushels of below-the-cost-of-production grain. China has been able to buy grain for $2 that costs $3 to produce- why don't we just give them a dollar in cash and be done with it? And if we can't compete in livestock export markets without a giant sea of too-cheap corn, is that such a tragic occurrence?
(For more research on how farm programs subsidize the livestock industry, see Industrial Companies' Gains from Low Feed Prices, 1997-2005 [pdf]. The inestimable Aimee Witteman of the Sustainable Agriculture Coalition played a part in that paper.)
Furthermore, why in the world would we allow CRP acres into production to drive down the price of corn when politicians have been devoutly praying for high grain prices for years? That would not make much sense, unless any politicians supporting this absurd move are more interested in maintaining a centrally-planned agricultural economy than seeing even the slightest hint of a free market. Not only that, but according to everyone we'll be moving to cellulosic ethanol in the near future, which will relieve the pressure on grain markets. Should we really tear up environmentally sensitive ground- much of which is recovering from years of abuse, a slow process to be sure- just to tide us over until cellulosic shows up?
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