UN FAO Chief Calls for Temporary Suspension of US RFS Ethanol Mandate

August 10, 2012 01:05 AM
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Vilsack comments on RFS corn mandate issues

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Impacts to corn production from the US drought are poised to have consequences for the global food supply, a situation which could be tempered by a lowering or temporary suspension of US ethanol mandates, according to José Graziano da Silva, director general of the UN Food and Agricultural Organization (FAO).

“One way to alleviate some of the tension would be to lower or temporarily suspend the mandates on biofuels,” Graziano da Silva said in an op-ed item in the Financial Times. “At the moment, the renewable energy production in the US is reported to have reached 15.2bn gallons in 2012, for which it used the equivalent of some 121.9 million tonnes or about 40 percent of US maize production. An immediate, temporary suspension of that mandate would give some respite to the market and allow more of the crop to be channeled towards food and feed uses.”

Further, the official said that the U.S. drought has global markets “highly vulnerable to any further supply side shocks.” However, Graziano da Silva said the current situation “is not a crisis yet,” but could deteriorate if unfavorable weather persists.

The Financial Times also quoted USDA Secretary Tom Vilsack as saying in an interview with the paper that high corn prices are already affecting ethanol production so altering the mandates “may not do what some people think it will do.” Further, Vilsack noted there are “fairly high” thresholds for a waiver of the Renewable Fuels Standard (RFS) such as serious economic harm to a region. “It’s not going to be an easy decision, clearly, but I think you have to look at this thing more broadly than some have looked at it,” he told the paper.

More petitions coming. The paper also reported, “Officials and lobbyists said several governors planned to join lawmakers next week petitioning the EPA, triggering a 90-day legal process that will force the Obama administration to rule whether to waive the ethanol mandate."

Graziano da Silva did point out in the op-ed item that the world is better able to address the current situation than they were in 2007-08. “Countries and the UN are better equipped than in 2007-08 to face high food prices, with the introduction of its Agricultural Market Information System, which promotes co-ordination of policy responses,” he stated.

The duration of the U.S. drought will be a factor in whether the current situation evolves into a food crisis, Graziano da Silva wrote. “Whether that happens depends not only on how long the drought lasts and how much damage it does to crops but on how far its impact spreads to other markets, whether there are further supply shocks and how countries react to the price movements,” he said.

While calling for the US to act on the RFS mandates, Graziano da Silva urged restraint on actions, noting that some of those steps deployed in 2007-08, such as export restrictions, made matters worse. “Given all this, governments should be cautious, especially considering that high prices are not necessarily negative,” he stated. “Attractive producer prices will be needed in the coming months to entice producers to embark on a much needed increase of crop cultivation, especially in the southern hemisphere.”

Of the coming USDA Crop Production report this morning, Graziano da Silva said, “Few people are expecting good news.” =

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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