Reducing American dependence on oil and petroleum products via increased domestic ethanol production is doable, and could benefit ag on a net basis, though livestock sectors may pay the price.
That's the aggregate view of two recent studies, one conducted by Iowa State University's Center for Ag and Rural Development (CARD), and the other commissioned by the 25 X '25 Working Group. The 25 X '25 program seeks to have America producing 25% of its energy needs by Year 2025.
"Much of the debate surrounding the current incentives to the ethanol sector suggests these incentives are driven in large part by a desire to reduce U.S. dependence on imported oil. By stimulating the production of ethanol to as much as 20% of total fuel use, these incentive structures appear to be well on their way to meeting this goal," explains the CARD report. "Other beneficiaries include landowners, who will benefit from a dramatic increase in corn prices and associated increases in land rents.
"U.S. crop growers will benefit until the higher profits are captured by higher land values and land rents. Dairy and beef producers who are near ethanol plants will benefit from having access to DDGs (dry distillers grains). Owners of ethanol plants will benefit until corn prices rise to eliminate the current arbitrage in ethanol production.
"Specialized pork and poultry producers who don't own shares in ethanol plants will lose, as higher corn prices, and eventually reduced international competitiveness, cause a reduction in production levels. The transition to these lower production levels will be painful for most of these producers. Ethanol construction will stimulate rural economies, as will the flow of profits from ethanol facilities. However, there will be a reduction in livestock in these same areas and this will eventually work to offset this advantage," the report says.
Meanwhile, the 25 X '25 study conducted by researchers at the University of Tennessee concludes:
- The 25 X '25 goal is achievable. Continued yield increases in major crops, strong contributions from the forestry sector, utilization of food-processing wastes, as well as the use of over 100 million acres of dedicated energy crops, like switch grass, will all contribute toward meeting this goal. A combination of all these new and existing sources can provide sufficient feedstock for the additional 15.45 quads of renewable energy needed (a quad is 1 quadrillion BTUs).
- The 25 X '25 goal can be met while allowing the ag sector to reliably produce food, feed and fiber at reasonable prices.
- Reaching the goal would have an extremely favorable impact on rural America and the nation as a whole. Including multiplier effects through the economy, the projected annual impact on the nation from producing and converting feed stocks into energy would be in excess of $700 billion in economic activity and 5.1 million jobs in 2025, most of that in rural areas.
- By reaching the 25 X '25 energy goal, the total addition to net farm income could reach $180 billion, as the market rewards growers for producing alternative energy and enhancing our national security. In 2025 alone, net farm income would increase by $37 billion compared with USDA baseline projections.
- Reaching the goal would also have significant positive price impacts on crops. In the year 2025, when compared with USDA baseline projections, national average per bushel crop prices are projected to be 71¢ higher for corn, 48¢ higher for wheat, and $2.04 higher for soybeans.
- With higher market prices, an estimated cumulative savings in government payments of $15 billion could occur. This doesn't include potential savings in fixed/direct or Conservation Reserve Program (CRP) payments.
- In the near term, corn acres are projected to increase. As cellulosic ethanol becomes commercially viable after 2012, the analysis predicts major increases in acreage for a dedicated energy crop like switch grass.
- The higher crop prices don't result in a one-to-one increase in feed expenses for the livestock industry. Increases in ethanol and biodiesel production result in more distillers dried grains (DDGs) and soybean meal, which partially compensate for increased corn prices. Moreover, the integrated nature of the industry allows for the adjustment of animal inventories as a way to adjust to the environment and increase net returns. In addition, the production of energy from manure and tallow could provide additional value for the industry.
- Contributions from America's fields, farms and forests could result in the production of 86 billion gals. of ethanol and 1.2 billion gals. of biodiesel, which has the potential to decrease gasoline consumption by 59 billion gals. in 2025. The production of 12.83 quads of energy from biomass and wind sources could replace the growing demand for natural gas and coal-generated electricity. These renewable energy resources could significantly decrease the nation's reliance on foreign oil and fossil fuels, and enhance the national security of all Americans.