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Ethanol Policy: Good Intentions, Poor Implementation

by 5m Editor
23 June 2008, at 10:47am

US - The country is facing energy problems and is working towards cutting down on the use of traditional fossil fuels but the ethanol mandate has serious repercussions in North Carolina.

According to Butterball CEO Keith Shoemaker writing in the News&Observer, a well-intentioned step to cut down on fossil fuels was the congressional mandate to produce ethanol, which can be used in combination with conventional motor fuels to help reduce the demand for oil. The problem with the ethanol mandate is that it has helped to triple corn prices in the United States, in part because of government subsidies.

Rising corn prices have been a damaging blow for the poultry and pork industries in North Carolina. Corn is the primary ingredient in feed for farm animals, including chicken, hogs and turkeys. Butterball reports that it has seen feed costs increase more than $200 million in the past year.

Butterball is not alone: this problem is shared by all the companies in the industry. The negative result is that they are reducing staff, increasing prices, halting plans for future growth and, in some cases, moving production overseas. Some of this rising cost expense has to get passed on to the consumer in the form of higher prices.

The rapid increase in ethanol production, and the corn it is using, causes severe disruptions in North Carolina agriculture, not limited to corn. Supplies and prices of soybeans have been affected, further increasing feed costs and the economic impact. With corn more valuable, more is being planted, which means there is less farmland for wheat and soybeans too. Therefore, the costs of wheat and soybeans have increased due to the lack of supply. This issue has a direct impact on the North Carolina economy.

Other factors are also impacting corn prices and demand, including growth in China and India, higher oil prices, drought and other issues. However unlike these factors, mandated ethanol production is something that can be controlled to help bring food and fuel prices back into balance.

It takes about 11 pounds of feed to produce an average broiler chicken, 75 pounds for a turkey, 154 pounds per egg-laying chicken per year and 800 pounds for a hog. FarmEcon LLC estimates that the added feed cost due to the renewable fuel standard and ethanol tax credits is about $0.52 per broiler, $3.37 per turkey, $6.85 per layer and $38.37 per hog.

While the ethanol mandate was well intentioned, Mr Shoemaker alleges, it was poorly implemented. It has created a serious concern with food costs and it needs to be re-examined. Taxpayers are funding government subsidies for ethanol that are causing increased food production costs. Taxpayers are also paying extra at grocery store. At the same time, business growth and job creation are being halted because of an avalanche of rising costs.

View the News&Observer story by clicking here.

5m Editor