Texas Gov. Rick Perry issued a call to the federal government last week for a 50% waiver from the federal renewable fuel standard (RFS) for ethanol produced from grain. A few others quickly sided with the idea, among them execs from Tyson and the Texas Cattle Feeders Association (TCFA).
While citing “good intentions behind the push for renewable fuels,” Perry said the ethanol mandate is “significantly affecting Texans’ family food bill.” While admitting that multiple factors are responsible for the skyrocketing grocery prices, he said a waiver of RFS levels is “the best, quickest way to reduce those costs before permanent damage is done." You can read his letter to Environmental Protection Agency (EPA) Administrator Stephen Johnson at: www.governor.state.tx.us/divisions/press/files/O-JohnsonStephen20080425.pdf.
Of Perry’s action, TCFA Chairman Walter E. Lasley said: “TCFA appreciates the Governor’s efforts to seek relief for consumers and livestock producers from inflated food and feed prices. We recognize that the federal government’s ethanol policy is not the only thing driving up grain prices, but it is certainly a major factor. The cattle feeding industry is suffering and we are thankful that Governor Perry is helping us bring this issue to the attention of federal policymakers.”
Tyson Foods President and CEO Richard L. Bond also applauded Perry’s petition, saying: “Something has to be done to address corn-based ethanol's detrimental impact on food prices and this is a good first step.
“We appreciate Governor Perry’s efforts and hope other states will follow his lead. In addition, we hope Congress will also do the right thing by removing the tariff on imported, sugar-based ethanol and by reducing or eliminating the 51¢/gal. federal tax credit for ethanol produced from corn in the U.S."
But, according to Corn eDigest, Iowa State University economists Bruce Babcock and Lihong Lu McPhail say that, in the short-term, relaxing government mandates for ethanol use will do little to lower corn prices. For now, the answer to higher corn prices is increased corn production, they report. Read their article, “The Outlook for Corn Prices in the 2008 Marketing Year,” at: www.card.iastate.edu/iowa_ag_review.
“The existence of ethanol plants should keep corn prices high for the next year or two even under lower ethanol subsidies,” write the researchers. “As other countries respond to high crop prices with expanded production, we should expect to see a greater decline in corn prices over time.”
Meanwhile, Southwest Farm Press reports that Texas Farm Bureau President Kenneth Dierschke characterized Perry’s claim that ethanol is the reason for rising food prices “misleading at best.” Citing a recent Texas Agri-Life Extension Service study that indicates a total waiver of RFS would reduce corn prices by only 30¢/bu. – a 5%-8% decrease based on current prices, Dierschke says, “Other factors, including the declining value of the dollar and smaller world grain stocks, have far more impact on the price of corn.”