Jim Rydbom, Associated Press
Statistically, ethanol is a farm-friendly fuel
- Article by: Gary Pestorious
- August 21, 2013 - 9:23 AM
The Aug. 15 commentary “Yes — reconsider that ethanol blend rate” was chock-full of misrepresentations and cherry-picked data to allow the authors to make a case against other American farmers and the ethanol industry.
While feed costs may have risen since the current Renewable Fuel Standard (RFS) was enacted in 2007, the annual difference between the prices that livestock and poultry producers received for their products and the cost of purchased feed has increased from an average of $91 billion between 2002 and 2007 to $97.7 billion for the five years since enactment of the RFS. In other words, the livestock industry has been able to cover feed costs and pocket nearly $7 billion a year in additional income.
The ethanol industry uses only the starch from corn to produce fuel. Millions of tons of distiller’s grains are produced each year as a high-protein, reasonably priced byproduct for livestock feed. This effectively reduces the amount of corn used for fuel to about 17.5 percent of our crop acres and about 3 percent of global grain supplies — nowhere near the 40 percent that ethanol’s opponents claim.
The prospects for 2013 are for a record corn crop and farm prices that are projected to decline by nearly 30 percent from last year’s drought-impacted crop.
When coupled with increased overall livestock production and higher average farm prices for beef, pork, chicken and turkey, it is hard to see how the RFS has had anything but a positive impact on U.S. livestock producers. In fact, the Aug. 5 edition of Feedstuffs, an agribusiness publication, quoted Jim Robb, director of the Livestock Marketing Information Center, as saying, “The poultry industry is seeing huge profits.”
Interestingly, all this occurred during a period when the chicken industry faced real challenges from disruptions in its two major export markets — Russia and China. In 2009-10, it was these events that were cited as the cause of plant closures and reduced marketing contracts for growers.
While the farm value of broilers increased by an average of 6.7 cents per pound for the years 2008-2012 compared to the 2003-2007 period, the spread between retail prices for broilers and the farm value increased at more than an 11-cent average annual rate. Retailers increased their margins over and above the price they paid the farmer who incurred all the production costs. Is the consumer being gouged by those claiming hardship?
In addition, from 2009 through May of this year, the Consumer Price Index for food has increased 8.7 percent, tracking pretty closely to the 7.8 percent increase in the index for all items. During the same period, gasoline prices rose a whopping 38.4 percent, validating the World Bank study released earlier this year that identified energy costs as being responsible for more than 50 percent of the increase in food prices worldwide while demonstrating that agriculture commodity prices had little impact on consumer food prices.
Analysis by the U.S. Department of Agriculture reached similar conclusions that the ethanol industry and improved prices to corn farmers had little impact on U.S. consumer prices, since the value of agriculture products represent less than 16 percent of the consumer cost of food. Processing, transportation, storage and marketing — all energy-intensive sectors in the food chain — are about 85 percent of the consumer food bill.
Ethanol is priced in a competitive market that, after adjusting for energy content, is holding down the cost of gasoline at the pump. The ethanol industry has also become a major contributor to economic stability and growth in our rural communities and has allowed farmers to make reasonable returns from the market rather than relying on government subsidies to offset low prices. Finally, ethanol is reducing the level greenhouse gas emissions from our vehicles, helping improve our environment.
The RFS is a win-win-win proposition for America that should be maintained.
Gary Pestorious is president of Frontier Family Farms; a board member of Growth Energy, an ethanol industry trade group, and a fifth-generation grain farmer from Albert Lea, Minn.
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