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Despite showing leadership in opposing a pork-laden farm bill, the administration failed to do so yesterday. EPA Administrator Stephen Johnson denied Texas Governor Rick Perry's request to cut in half the government-mandated level for ethanol in gasoline to help reduce soaring corn prices. While debate continues over the exact contribution of biofuels to the recent global food price hikes, corn-based ethanol has clearly driven up the price of corn and Governor Perry is particularly concerned about the effect of rising feed prices on the state's large livestock industry.
For me, the impact of biofuels on staple grain prices -- white corn, wheat, and rice -- is of even greater interest because people, not cows, depend on them for nutrition and the burden on poor people in developing countries, who often spend half of their household incomes on food, is especially high. Whatever the impact is, and the estimates range from the low single digits to as high as 75 percent in a recently-released World Bank paper, it will surely grow as the mandate for blending gasoline with ethanol is set to rise from 9 billion gallons to 15 billion gallons by 2015. This means that nearly one half (up from roughly one quarter) of the U.S. corn crop will be diverted from food, for people or animals, to fuel.
Waiving all or part of the mandate this year would not solve the food crisis on its own, but it would set the stage for a new president and Congress to reconsider this ill-advised policy next year. They should do so, not only because of the upward pressure on food prices, but also because corn is an inefficient ethanol feedstock (requiring almost as much energy to produce as it generates when burned), the taxpayer burden from government subsidies to the industry grows with production, and the competition for land to produce crops for both food and fuel probably contributes to higher greenhouse gas emissions compared with gasoline, rather than reducing those emissions as promised.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.