Study says ethanol industry needs no more subsidies

The ethanol industry in the United States is thriving and no longer needs a high level of federal support, according to a new study by agricultural economist Thomas Elam. “Ethanol is one of the most profitable enterprises in the United States today, but unfortunately a high percentage of those current profits come not from the marketplace, but from the federal treasury,” noted Elam, president of FarmEcon.com, a consulting firm.

Created at a time when the ethanol industry was not profitable, federal mandates and other support for corn ethanol have been “rendered obsolete by changing circumstances,” Elam wrote in a report on ethanol, Increased energy prices make it possible for the ethanol industry to thrive on its own.

Elam’s study was commissioned by the National Chicken Council, American Meat Institute, and National Turkey Federation. The study is posted to the Web site www.balancedfoodandfuel.org .

“Federal supports are severely distorting crop prices while adding little, if anything, to the stated goals of the renewable energy program,” Elam said. “The ethanol program is also increasing the federal outlays and has very little impact on U.S. dependence on foreign oil,” he said.

When fully implemented, federal supports will drive up the cost of corn and other grains by $34 billion a year, Elam estimated. The ethanol boom is driving up the cost of food production, and could eventually cost a family of four about $460 a year in higher food costs, he said.

Even if all gasoline in the country had 10 percent added ethanol--the formulation called “E-10”--that would displace only 2.5 percent of current crude oil imports and 1.5 percent of overall crude oil consumption, Elam estimates. One drawback of ethanol, he noted, is that fossil energy used in the production and distribution of the product consumes about two-thirds of the energy produced. “On a net energy basis, ethanol will not make a significant contribution to overall U.S. energy production,” he wrote. Instead, he wrote, the ethanol boom would have a huge impact on the worldwide supply of corn and other grains. “If the ethanol industry achieves 100 percent E-10 market share in the United States, it would take about 200 million tons of corn annually. This is equal to a 10 percent reduction in the current global grain supply,” Elam noted.

The influence of the federal support program, which consists of direct support to small ethanol producers and a tax credit of 51 cents per gallon to fuel blenders who add ethanol to gasoline, has shifted from making ethanol feasible to causing significant increases in food costs and distorting farmer planting incentives, Elam wrote. “The current ethanol-based value of corn without subsidies is well above the $2.20 average of corn prices over the last four years,” he wrote. “Ethanol producers can easily afford to compete with U.S. livestock and poultry producers for corn. Even without subsidies, ethanol production would be expanding at a significant rate due to high gasoline prices and the improvements in ethanol production technology in recent years.”