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Potential Impacts if Corn-Based Ethanol Mandate Trigger Legislation Becomes Law

October 19, 2011
By: Jim Wiesemeyer, Pro Farmer Washington Consultant

The U.S. livestock industry sector in large part was late to the draw in analyzing how some prior farm bill-related initiatives could impact the livestock, dairy and poultry sectors - programs such as country-of-origin labeling and efforts via the GIPSA rule regarding livestock and poultry marketing practices being just two recent examples. Some observers say the same thing could be said for the groups' push to alter the mandate for corn-based ethanol.

But in the case of ethanol incentive payments, and the mandate, there have been economic reports. One is a study by Bruce A. Babcock and Jacinto F. Fabiosa called The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History. Babcock also released a report in 2010, Mandates, Tax Credits, and Tariffs: Does the U.S. Biofuels Industry Need Them All? Also, FAPRI, in 2009, released a report looking at various ethanol policy options. FAPRI has also completed other ethanol/biofuel-related reports. In 2009, the General Accountability Office (GAO) released a report, Potential Effects and Challenges of Required Increases in Production and Use.

The Renewable Fuel Flexibility Act was introduced by Reps. Jim Costa (D-Calif.) and Bob Goodlatte (R-Va.). It would seek to alter the renewable fuel standard (RFS) by linking the corn stocks-to-use ratio (s/u ratio) to the requirements for corn-based ethanol. The goal, supporters said, was to give relief to livestock producers, dairymen and consumers. "The RFS has been incredibly successful in replacing a portion of the oil we import with home-grown energy, and I continue to support RFS. But our continued reliance on corn-based ethanol has impacts," said Costa. "While ethanol is not the only factor I am convinced it is a factor in the high prices farmers pay for feed and consumers pay for food."

The bill is endorsed by the American Meat Institute, the Grocery Manufacturer Association, the National Cattlemen's Beef Association, the National Chicken Council, the National Pork Producers Council, the National Turkey Federation and Oxfam America. It also has support from California groups including the California Poultry Federation, the California Cattlemen's Association, California Dairies Inc. and California Milk Producers Council.

A coalition of seven ethanol and agricultural organizations responded to the legislation. The groups included the American Coalition for Ethanol, the American Farm Bureau Federation, Growth Energy, National Corn Growers Association, National Farmers Union, National Sorghum Producers and the Renewable Fuels Association. NCGA President Garry Niemeyer said the legislation "would put progress made by the ethanol industry in jeopardy and we are asking members of Congress to oppose its passage."

The letter pointed to a July 2011 analysis completed for the International Centre for Trade and Sustainable Development, which found that corn prices would have been exactly the same in 2009-10 and only 18 cents a bushel lower in 2010-11 if both the RFS and Volumetric Ethanol Excise Tax Credit had not existed. In addition, most of the 18 cents was attributed to the 45-cent blender tax incentive or VEETC. "Thus, implementing an RFS waiver trigger based on the stocks-to-use ratio will not have the effects on corn prices desired by livestock and poultry interests," the letter said.
Costa and Goodlatte labeled the proposal "common-sense legislation" that deals only with corn ethanol, not advanced biofuels.

If the bill passes Congress, and is signed into law -- both tough hurdles, the mandated level of corn-based ethanol would be determined twice yearly, with the administrator of the Environmental Protection Agency (EPA) reviewing USDA reports on corn stocks-to-use ratios. When certain stocks-to-use ratios are met, the EPA would issue a waiver to the corn ethanol portion of the RFS.

The following are details of the legislative initiative, via Rep. Costa's web site:

Renewable Fuel Flexibility Act

This legislation will alter the Renewable Fuels Standard (RFS) to give relief to livestock and food producers and consumers of these products. In the 2004/2005 crop year, the last crop produced before the RFS was implemented, 53.4% of that crop went to feed livestock and poultry and 12.5% went toward ethanol production. In contrast, the corn harvest this year is projected to send 40% toward ethanol production and 37.6% to the livestock and poultry feed supply. This year livestock and poultry producers will use 1.1 billion fewer bushels of corn than the 2004/2005 crop year, and this will be the first year ever that ethanol production has used more than feeding livestock and poultry in the US.

This legislation will link the amount of corn ethanol required for the RFS to the amount of the U.S. corn supplies. This legislation sets up a process, so that twice a year, when the USDA reports on U.S. corn supplies, based upon the ratio of corn stocks- to expected use, there could be a reduction made to the RFS. This is a common sense solution to make sure that we have enough corn supplies to meet all of our demands. Additionally, the bill contains language that these reductions will only be made from corn ethanol, this does not affect advance biofuels.

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