The "Doublemint" Effect of Public Policy by Bill Burkett
The 51 cent per gallon direct subsidy for ethanol; and the secondary tax credits and benefits for ethanol give an unfair advantage to investors, not consumers within the fuel versus food debate.
In fact, the idea that Americans would have to choose between these two provisions is proof that once again, the President, Congress and politics in general - "Big Brother" - if you will has once again stepped in and upset the natural balance of production between agricultural sectors and consumers. Playing the base consumer from both directions creates the necessary leverage for government interaction - a false shortage.
It's a novel idea that those who most lobby and therefore control government policy would use farmers and environmentalists, hand in hand to again raid the treasury and bilk the American consumer. Novel or not, it's making it possible for entire ethanol plants to be completely paid for within sixteen months just from the subsidy itself. Mid-sized plants are raking in well over $100,000 a day just in the subsidy itself.
This is the "next generation" Enron; according to several leading economists; for it again uses false energy shortfalls to create a fervor followed by enormous federal investment straight into the accounts of the richest of Americans. In the process, it also bilks consumers at least twice - the Doublemint effect.
Agriculturists from all sides now wager more on whether the US Corn Growers and the Cargills and ADMs have now co-opted the re-writing of the next farm bill to make these provisions a tax action in perpetuity; once again favoring and paying gross sums of money directly into the coffers of those least in need of them to get them to do things they would have done anyway.
More than one study on the production of ethanol from corn and grain sorghum - feedstocks - have concluded that energy consumed is at par (or approximately equal) to energy produced within the conversion of corn starches to ethanol. And while we hear one expert after another say this was so in the early days, but he efficiencies have changed; we wonder how a marginal system of production can be so subsidized to create alternative energy sources. And while environmentalists have been recruited to talk of the ozone effect, other environmentalists speak of the negative effects to pollution of soil and water. The scientific debate continues; unlike the debate on wind and solar powered technologies where the conclusions are near unanimous.
I know a little about the industry and the economics of ethanol, having left the Economic Development Administration family; becoming a consultant building ethanol plants throughout the Midwest in the early 80s.
In the latter 70s and early 80s, there was a subsidy as well. But the subsidies lacked the political glitz and glamour that senior conglomerates within the ethanol industry have been able to muster this time around. In fact, the Mark Andreas's of the World at ADM have enlisted the active support of the American Corn Growers to build a grossly inflated subsidized pricing structure, largely paid for by extreme lobbying efforts of the industry.
Certainly, this is price fixing at the most strategic levels, for it uses government - public subsidies to camouflage the creation of a false market.
Numerous economists and bankers now say that without the 51 cent per gallon subsidy, the current break even for corn used within ethanol production would be about $2.80 per bushel. I've heard as high as $3.09 on the extreme. Pork producers point out that for every rise of 10 cents in the price per bushel of corn, their costs increase by $1.00 per hundredweight produced.
With a fair market break even corn price of $2.75 (as compared to today's $3.97 price) we can see that the price of production of pork products - ham, bacon, sausage and ribs moves up by over $30 per head and therefore increases the retail premium price at the meat counter for pork by over thirty cents a pound.
Because of the feed conversions of pork versus cattle, the effect is a little over twice as great with beef. We haven't considered the price of milk and dairy, but the effect carries there too.
The industry's response is that the process of ethanol production only uses the starch from the corn to produce ethanol. But it's the starches within corn that primarily produces the growth and caloric production that makes quality pork, beef and dairy products on the shelf. If it wasn't so, animal nutritionists wouldn't provide a suggested maximum content of the total animal ration of 40% of distiller's dried grains (DDG) and distiller's dried grains and solubles (DDGS) within the diet. And nutritionists and veterinarians wouldn't constantly warn of the imbalance of Thaimine to cause Polioencephamalicia (PEM) when DDG and DDGS is used to higher percentages. This claim is a public relations escape to deny that there is now a "food versus fuel" debate at all; a claim without validity.
The exact figures of this debate are really not what's important within this discussion.
The basic principle that once again taxpayers are ripped from both ends shows the violation of principle here.
Thanks Bill. Another side effect of this double ripoff is that prices for farmland are soaring as they are bought up to produce corn. Meanwhile, poor working Mexicans are paying outrageous prices for their food staple, tortillas. The negative fallout just keeps going.
by
Bob Trowbridge (1 articles, 0 quicklinks, 1 diaries, 40 comments)
on Sunday, February 25, 2007 at 8:18:09 PM
ethanol EROEI [energy returned on energy invested]
But allowing a net positive energy output of 30,000 British thermal units (Btu) per gallon, it would still take four gallons of ethanol from corn to equal one gallon of gasoline. The United States has 73 million acres of corn cropland. At 350 gallons per acre, the entire U.S. corn crop would make 25.5 billion gallons, equivalent to about 6.3 billion gallons of gasoline. The United States consumes 170 billion gallons of gasoline and diesel fuel annually. Thus the entire U.S. corn crop would supply only 3.7 percent of our auto and truck transport demands. Using the entire 300 million acres of U.S. cropland for corn-based ethanol production would meet about 15 percent of the demand.
Growing and processing grains by modern methods requires considerable energy input in fuel, fertilizer, and spray. By some computations, using corn for fuel would consume more energy than it would produce.
by
lwarman (0 articles, 0 quicklinks, 0 diaries, 48 comments)
on Monday, February 26, 2007 at 7:45:49 PM
We're just now being bombarded with TV ads about the wonders of 'renewable Biodiesel'. Only here they are stressing Roundup-Ready Canola (the next superweed) instead of corn. One interesting proposal is to render down cattle nervous system tissue -- since BSE there isn't much else you can do with the stuff.
by
lwarman (0 articles, 0 quicklinks, 0 diaries, 48 comments)
on Monday, February 26, 2007 at 2:00:59 AM
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