Burning ethanol made from corn is supposed to reduce our dependence on oil; instead, it's wreaking havoc on agriculture.
You'd be hard-pressed to find a public official who doesn't want to reduce our dependence on foreign oil, so it's not surprising that there's broad political support for turning American-grown corn into ethanol, a gasoline additive that can help offset the need for the petroleum that powers American cars and SUVs. In his 2007 State of the Union address, President Bush proposed reducing gasoline consumption by 20 percent over the next decade, in large part by expanding reliance on alternative and renewable fuels such as ethanol and biodiesel.
The drive for ethanol and other renewable fuels is more than rhetoric. The 2005 Energy Policy Act requires gasoline sold in the United States to contain increasing amounts of renewable fuel. Between 2006 and 2017, the goal for incorporating renewable fuels into the gasoline market will rise from 4 billion gallons per year to 7.5 billion gallons per year, a target many economists expect will be exceeded.
While ethanol can be made from a number of feedstocks, including sugar cane and switch grass, in the United States it's overwhelmingly made from corn, primarily because America is a leading corn producer. Since the technology for turning corn into ethanol is mature, it is much cheaper to produce than other forms of ethanol. Corn growers and ethanol manufacturers have taken the new renewable fuel standards to heart, along with profits to the bank. As oil prices have soared in recent years, the ethanol business has become extremely profitable. A federal tax credit of 51 cents for every gallon of ethanol that refiners use, as well as a tariff of 54 cents on every gallon of ethanol imported from abroad, have guaranteed the market for U.S. corn growers and ethanol producers. Over the next two years, ethanol-production capacity is expected to more than double from 5 billion gallons in 2006 to more than 11 billion gallons.
To feed this growing appetite for ethanol and its associated profits, growers increasingly are abandoning soybeans and other crops in favor of expanding their increasingly lucrative corn harvest. The Agriculture Department projects that by the 2009-2010 crop year, more than 30 percent of the corn grown in America will be used for ethanol, compared with 14 percent last year. Department economists also expect that corn prices will reach $3.75 a bushel by then, before declining to $3.30 a bushel by 2016. "Corn prices at these levels are record high and are unprecedented on a sustained basis, exceeding the previous high average over any five-year period by more than 50 cents a bushel," according to a May report called "Ethanol Expansion in the United States: How Will the Agriculture Sector Adjust?" by Paul C. Westcott at Agriculture's Economic Research Service.
Rising corn prices already have had far-reaching effects. As farmers favor corn over other crops, the supply of and demand for those crops will create price shifts. Because corn is a grain staple, animal feed costs are rising and creating new problems for livestock growers. The effects aren't all domestic, either. The United States accounts for more than 65 percent of global corn exports. As more U.S. corn is diverted to domestic ethanol production, less likely will be sold on the world market, driving up prices internationally. This has created enormous disruption in Mexico, where the rising price of corn tortillas, a staple of the Mexican diet, fueled public protests earlier this year.
Neilson Conklin, director of market and trade economics for Agriculture's economic research division, says the ethanol boom significantly increases prospects for food price inflation, raising important public policy questions. Speaking to a group of government and private sector officials attending a Defense-sponsored energy seminar in Crystal City, Va., in May, Conklin said that on average, Americans spend about 10 percent of their income on food. But for the poor, the percentage is much higher, meaning they bear a disproportionate share of rising food prices.
There are other problems as well, says Conklin. Ethanol production plants must be close to feedstocks. Yet feedstocks are predominately in the Midwest-not on the coasts where ethanol is most needed. And ethanol is too corrosive to be moved in pipelines, so it must be shipped by truck or rail, which puts more pressure on the fossil-fuel-dependent transportation system.
Many critics of corn-based ethanol see more promise in cellulosic ethanol-ethanol made from the cellulose found in a range of biological material, but "we aren't there yet," says Conklin. The process for creating ethanol from biomass runs about $2.65 a gallon, which is far more expensive than the $1.65 it costs to produce a gallon of corn-based ethanol.
"The  energy bill has had tremendous implications for agriculture," Conklin says. "We need to understand that agriculture and energy policy are increasingly intertwined."