As Green ex-plains, the first expected outcome is the bankruptcy of many livestock producers. Next, consumers will see 10% to 20% inflation in food costs, displacing food for some people and creating havoc in the poorest places of the world that cannot afford significantly higher priced food.
“This problem is created by a government mandate that requires the corn first to be used for ethanol at any price,” says Greene. “In a supply shortage like this one, this policy has severe consequences and if something isn’t done immediately, we’re going to suffer problems across the whole food sector.”
Time for change
To help avoid the scenario Greene describes, Reps. Bob Goodlatte (R-VA) and Jim Costa (D-CA) introduced H.R. 3097, the Renewable Fuels Standard Flexibility Act in October 2011. If passed, it would require EPA and the Department of Agriculture to adjust or waive the RFS for corn-based ethanol when national corn stocks fall below specified levels.
“We urge Congress to pass the Renewable Fuel Standard Flexibility Act (H.R. 3097),” wrote Newman, “which automatically adjusts the mandate based on the ratio of ending corn stocks relative to total use. This is a balanced way to reduce the ethanol mandate without negatively impacting the RFS.”
Although action on the bill has remained stagnant since it was introduced last year, Steve Kopperud, executive vice pres- ident of Policy Directions, Inc. and AFIA’s government affairs consultant, says the USDA and EPA currently have emergency authority to waive the RFS under certain circumstances. But even with the drought impacting the cost and availability of corn supplies, Kopperud says the decision to waive the RFS in an election year is an unlikely one.
“I’m not picking up a lot of confidence that this is something the president will take advanced action on,” says Kopperud.
In fact, in July — while the Midwest was still in the grips of a record-breaking heat wave — Tom Vilsack, secretary of agriculture, said there was no reason to waive any of the ethanol RFS mandate.
RFS backers supported Vilsack’s announcement. National Corn Growers Association president Garry Niemeyer said in a statement, “When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes. It’s working. The RFS is revitalizing rural America, reducing our dependence on foreign fuel and reducing the cost of gasoline. Making changes to the RFS now would only ensure that consumers suffer due to significantly higher fuel prices.”
Niemeyer went on to point out that concerns over food shortages, like Greene and Newman have raised, may be unfounded — that it’s too early to tell.
“And while it is true that our corn crop is suffering, it’s still in the field,” said Niemeyer. “We won’t know the actual size of the 2012 corn crop until months from now. In the meantime, the market is working. All corn users are responding to market signals. Ethanol production and exports are down. In addition, there is currently an ethanol surplus in the United States that will further reduce demand on the 2012 corn crop.”
Meanwhile, Greene and others in the feed industry believe biofuels should be driven by market demand and not government mandates.
“We need to take immediate steps to prevent the impending corn and bean shortages exacerbated by the biofuels mandates, and not wait until the food shortage and price inflation become extreme,” says Greene. “But I’m afraid the government will be too slow to react.”
Kopperud notes Congress is entering its last days before election, and then a lame duck session in November, but action on any RFS bills isn’t likely unless the situation in corn states deteriorates dramatically and quickly. Real action on the RFS won’t happen until the middle of next year. In the meantime, the livestock industry and consumers will continue to try to adapt to the effects of the current ethanol mandates.