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Biofuels Fail as a Farm Bill Substitute

by: Brad Wilson

Mon Aug 20, 2012 at 14:22:25 PM PDT


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Some History

Biofuels are criticized for a variety of reasons.  Here I focus on the impact of ethanol on corn prices (biodiesel on soybean prices).

Numerous food films, books, blogs, and videos have highlighted the problems associated with cheap corn and other cheap farm prices. Corn prices, for example, were below the full costs of production every year 1981-2005, except 1996.  (USDA-Economic Research Service, "Commodity Costs and Returns," "Historical Costs and Returns: Corn," "Recent Costs and Returns: Corn.")  As the worlds dominant corn exporter, it is strange that the US chose to overproduce and lose money per unit on corn over this period.  OPEC countries chose to balance supply and demand and increase their profits.

Corn and other farm commodity prices fell because farm bill price floors and set asides (supply reductions, as needed,) were reduced (1953-1995) and eliminated (1996-2012).  An additional factor is the push for "free trade," which has fostered the cheap farm prices where the US, the dominant farm commodity exporter, has lost money on exports. Other factors include the weakening of antitrust laws, and weak antitrust enforcement.  During the latter period identified above (of Price Floor elimination, 1997-2005) we had the lowest corn prices in history.

Recently (2007-2011) we've had much higher corn prices, including yearly average prices 2-3 times higher than the lowest price year in history, which was 2005.  That's a dramatic change, though corn costs of production have also risen rapidly over these years.

Ethanol is attributed with part of that change.  Ethanol production reduced corn oversupply.  It helped to end, at least for now, the cheap corn era, and some of the problems associated with it.  In particular, it ended export dumping.  

Farmers have advocated for support for ethanol to try to raise corn prices.  Farmers also have been opposed to cheap corn, and they have led that fight for decades. Over those decades, farmers lacked for support against cheap farm prices (cheap corn, etc.) from an adequate consumer side movement. Consumers didn't support farm (food) justice, and farmers lost the farm bill fight.  That's how the farm bill got worse and worse and worse.

Agribusiness corporations, especially ADM, have taken a very different approach.  They fought for low corn prices, for bad farm bills and export dumping, in part to make their huge ethanol division lucrative. They joined farmers, however, in pushing for subsidies for ethanol itself.

In these recent years, then, ethanol has fairly effectively substituted for corn price floors.  At the same time, each time corn prices rose to fair trade levels, ethanol plants began to go broke and/or shut down.  

Another factor has been the price of oil.  Oil prices have skyrocketed in recent years, saving ethanol, by making it easier for ethanol to compete.  

Brad Wilson :: Biofuels Fail as a Farm Bill Substitute
A Good Farm Bill Vs Ethanol

A good farm bill emphasizes balance.  (The Farm Service Agency used to be called, the Agricultural Stabilization and Conservation Service.")  For commodity crops like corn, there needs to be balance between Price Floors and Set Asides (supply reductions,) on the bottom side of price, and Price Ceilings and Reserve Supplies on the top side. This provides fair prices, "fair trade" or "living wage" levels for farmers, and protection from unfairly high prices for consumers, livestock interests, and processors.

In such a farm program, the livestock sector itself is protected from BOTH cheap feed prices and expensive feed prices.  That gives a preference to diversified crop and livestock farmers, which farm in more sustainable ways. It avoids the situation of taking corn from crop farmers and giving it to CAFOs at below fair trade and below cost price levels.  That also helps to balance livestock prices.

Market management policies (ie. price floors) are also needed for dairy farmers. These too have been hugely weakened over the years, leading to an acute dairy crisis.  The US government is rapidly destroying it's own dairy farmers!  

How Biofuels Fail the Cause of Farm Justice

Farm Bill market management, as described above (price floors/ceilings and supply management), is needed because farm commodites lack "price responsiveness" on both supply and demand sides.  People don't eat 4, 5, or 6 meals just because wheat, rice, corn and milk prices are low.  Likewise, farmers don't stop planting all of their acres.  To manage this reality, Congress must enact policies, and USDA must administer programs that deal with both high and low prices, both under and oversupply.  

What's happened is that US government leaders have abdicated this responsibility, in the farm bill and farm programs, in trade agreements, and in antitrust laws and enforcement.

At the same time they've given big support to biofuels.  Biofuels have contributed to some very positive impacts on some of these specific price problems, in certain times and places, but they've also contributed to massively destructive impacts, such as the dairy crisis and the hog crisis (8ยข hogs, 1990s) that drove most US hog farmers out of business.  

Biofuels in the Long Run, and the Savage Dilemmas of Hunger

Those warning against biofuels and food have often misunderstood the question of balance, as it relates to biofuels.  Biofuels have helped end export dumping.  70% of the population of Least Developed Countries, the poorest countries, is rural.  They need fair trade farm prices for wealth and jobs creation. 80% of the "undernourished" are rural.  They're a lot more hungry and starving from decades of low farm prices and the devastating poverty those prices helped to create, than they are from a few years of farm prices that are much closer to fair trade levels.  

The so-called higher "food price crisis" is real and devastating, but a return to export dumping is no solution.  The real cause is the dilemma poverty, which was caused, to a significant degree, by long term export dumping.

On the other hand, how much energy can we "eat" up?  It doesn't have the same kinds of limits that we've seen with food. If biofuels can become sufficiently competitive with fossil fuels, the potential will be there for farm and food prices to rise far above fair trade levels, much as oil has.

A barrel of oil and a bushel of corn were the same price in 1947, (yearly average prices, $2.16).  Back near that time, when commodity crops were near parity levels, a bushel of wheat or soybeans, or a hundredweight of rice was MORE expensive than a barrel of oil. In recent years, oil prices per barrel have been many times the price of these units of farm commodities.  Parity farm prices per unit have been a small fraction of oil price levels per barrel.  (Parity is the traditional standard for fair trade, living wage farm prices.)

In the savage dilemma of hunger, people starve and die from very low farm prices (over decades, fostering massive poverty,) even as they die from higher farm prices (short term), more expensive food.  Fixing that massively broken down economic system, (ie. of farm and food wealth and jobs creation,) is no easy matter.  There seem to be tough dilemmas in the best of farm price solutions, at least in the short run.

Is the Sky Falling?  And since When?

To those who understand these issues, hunger advocates can sound like chicken little, proclaiming that the sky is falling.  In truth, over the decades and prior to big biofuel impacts, a large portion of the sky had already fallen, and that too was a devastating food crisis, a food poverty crisis.  

The dilemma is that more of the sky can fall, due to the dilemmas caused by such severe poverty.  With a broken sky, more falls even as you try to fix it.  The dilemmas are so severe that the global rural poor can't afford, (as basic food items, ie. corn meal, flour, rice,) the very fair trade farm price levels that they hugely need as an economic stimulus for their own rural economies.  Therefore, without question, as the hunger organizations know best of all, the sky is falling with fair trade farm prices.  That's one horn of the dilemma, the bull of hunger, and it is goring people to death.

For the desperate urban poor, and the poor food importing countries, there is an even longer time delay between rural wealth creation from fair trade farm prices, and the positive local, regional and global economic impacts of wealth and jobs multipliers.

Part of that higher food costs horn is ethanol. The system of leaving justice up to ethanol works poorly.  Under that system, no one is rationally managing market volatility (with farm policy and programs, antitrust measures, trade agreements, and other, needed regulation of speculation).  That system devastates US dairy farming.  That system is part of hunger today.  In the future, that system could all be much, much worse.

It's especially important, however, that we wisely grapple with these dilemmas. A return to export dumping is no solution.  (We already tried that for decades, with devastating results!) In so grappling with the bulls of injustice, the US Farm Bill has a unique role to play.  We must not place ethanol in chains, prior to the passage of a just farm bill.  We must also not allow people to starve to death.  

I recommend that US farm and food advocates look at US dairy family farming as a sort of canary in the mine, on the topic of high corn prices from ethanol.  We must be wise, courageous, and just.  We must not allow the mining* mentality of industrial agriculture to burn US dairy farming to the ground.  

Food and hunger advocates, and other ethanol critics, must learn to advocate for the key farm justice proposals** in the US farm bill.  So far many major hunger organizations totally fail on this account (but see Grassroots International).  In particular, the food movement must help fight for, and win, justice for dairy farmers.  So far, mostly, they don't know that this issue, the most acute US farm crisis for the 2008, 2012 farm bills, even exists.  The US Congress, USDA and other political leaders must enact farm justice, as an alternative to the irresponsible practice of using biofuels as a fall back position.  All of this we must do, even at this late farm bill hour.  We must feed the hungry, and as we do it, win justice for them.

*See Brad Wilson, "Understanding Technobiology's Gold Rush: And the Freedom to Mine Bill," http://www.zcommunications.org...

**Brad Wilson, "Fact Sheet: Farm Justice Proposals for the 2012 Farm Bill," ZSpace, 5/11/12, http://www.zcommunications.org...

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