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Candidates’ views on ethanol could affect local farmers

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Stacy Vogel
October 19, 2008

Like it or not, the agricultural sector has gotten into the energy business.


Farmers now sell 32 percent of U.S. corn to the ethanol industry, so their future is tied up with ethanol’s future, at least for now, said Chris Hurt, professor of agricultural economics at Purdue University in Indiana.


So when one presidential candidate proposes eliminating ethanol subsidies, it makes grain farmers nervous, Hurt said.


Presidential candidates Barack Obama and John McCain have opposite views when it comes to ethanol subsidies, and those differences could have a big effect on farmers and ethanol investors, including those here in Rock County.


Obama supports maintaining tax credits given to oil companies when they blend ethanol with gas. The credit is now at 51 cents a gallon, though it’s scheduled to drop to 46 cents Jan. 1.


McCain supports energy alternatives but not ethanol subsidies, his campaign has said. He wants to let the free market determine the country’s use of ethanol.


“I have long opposed government subsidies for ethanol,” he told the Clean Cities Congress and Exposition in 2006. “Ethanol production, in my view, can and should stand on its own.”


And while that would be good news for ethanol opponents, it could be bad news to ethanol investors and corn farmers, Hurt said.


Government policy

The federal government has three basic policies when it comes to ethanol promotion, Hurt said:


-- The Energy Independence and Security Act of 2007 mandates the country increase its use of renewable fuels every year, up to 36 billion gallons in 2022 or roughly 20 percent of fuel demand.


-- It offers a tax credit of 51 cents a gallon for ethanol buyers—generally oil companies that blend ethanol into their gasoline.


-- It imposes a tariff of 54 cents a gallon on Brazilian ethanol made from sugar cane, protecting the American ethanol industry.


McCain opposes all three policies, Hurt said.


Help or hurt?

The tax credit has had an effect on the price of ethanol and corn, Hurt said. Because of the credit, oil companies are willing to pay more for ethanol. In turn, ethanol producers are willing to pay more for the corn used to make ethanol.


Corn prices have soared over the last year, though experts debate how much of the increase is because of ethanol.


Hurt believes ethanol subsidies account for about $1.43 per bushel in the price of corn, he said.


If those subsidies were taken away, it could lower the demand for ethanol, especially if the price of oil continues to drop, he said. That could in turn lower the price of corn and hurt corn farmers.


“From where we are today, that would put the grain farmers in depression,” Hurt said.


But the inflated price of corn has already hurt other farmers, said Karen Schapiro, executive director of Midwest Environmental Advocates. As the price of corn increases, large corporate farms have rushed to buy land, driving up the price of farmland and making it harder for small farmers to compete, she said.


“By and large, we think the subsidies have benefited the big agribusinesses to the detriment of many more local or smaller farming operations.”


It’s also increased costs for livestock farmers who need corn to feed their animals, Hurt said.


Is it worth it?

Aside from the effects on farmers, the question remains if the government should be promoting the ethanol industry in the first place.


Joshua Morby, executive director of the Wisconsin Bio Industry Alliance, says yes.


The government subsidies encourage consumers to buy ethanol instead of gas, reducing the country’s dependence on foreign oil and benefiting the local economy, he said.


“The Wisconsin ethanol industry also provides hundreds of jobs to the community; it provides millions of dollars in economic development in the state,” he said. “Do you want to get your gas from a Middle Eastern country on the other side of the world, or do you want to get your gas from a Wisconsin field?”


Schapiro, on the other hand, says no. Her organization opposes corn-based ethanol because it believes ethanol does not reduce greenhouse gas emissions and has contributed to the skyrocketing price of food worldwide.


“These businesses shouldn’t be subsidized,” she said.


Reality

No matter who wins the election, Hurt doesn’t believe ethanol subsidies will disappear all at once.


If McCain wins, he’d still have to convince Congress to eliminate the subsidies, tariffs and mandates.


Hurt believes the government will instead continue to reduce ethanol subsidies step by step. Meanwhile, more efficient forms of renewable energy, such as cellulosic ethanol, will start to overtake corn ethanol, he said.


Eventually, the government will tell the ethanol industry to stand on its own, he said. After that, market forces will determine the future of corn-based ethanol.


“Government helped an infant industry get established,” he said. “But it’s not the role of government to continue after that industry gets established, the ethanol industry gets established, to continue to help.”



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