The Renewable Fuel Standard (RFS), which mandates expanding use of ethanol for fuel, always has been a point of contention between grain producers and grain users such as livestock producers. This year’s shrinking corn crop has brought the issue into the spotlight. Last week, we reported on a study from Thomas Elam, president of FarmEcon, LLC, that suggests the RFS drives food and feed prices higher with little or no benefits in terms of petroleum imports or consumption. At the same time, U.S. Representative Bob Goodlatte (R-Va.) introduced a bill that would allow flexibility in the RFS based on the corn stocks-to-use ratio. Read more about the bill and Elam’s report in “Smaller crop, same ethanol production.”
Since then, several groups have issued statements either supporting the current RFS or calling for change.
National Farmers Union (NFU) president Roger Johnson says the main culprits in the current rise in commodity prices are the drought and high petroleum costs, not the Renewable Fuel Standard as this study suggests. “Commodity prices were actually declining in the months prior to the drought,” he says. “Some are erroneously using this study as a reason to reduce the RFS. NFU opposes the proposed legislation by Reps. Bob Goodlatte and Jim Costa (D-Calif.), that could potentially reduce the RFS as suggested by the study. The legislation would require a biannual review of ending corn stocks relative to their total use and the RFS would be reduced if that ratio fell below certain thresholds.
“Many in the livestock industry are saying that we must choose between food and fuel as the drought continues and production estimates decline, but this is a false choice. Rather than dramatically altering RFS, we need to look at policies such as the Market-Driven Inventory System (MDIS) to save back some grain during periods of high production and low prices so that it can be used during times of low production and high prices like we are now experiencing.”
The National Corn Growers Association (NCGA) also favors keeping the RFS as it is. “This is a time when farmers and ranchers are suffering the nation’s worst drought in years, covering nearly two-thirds of our country’s land mass,” says NCGA president Garry Niemeyer. “Like any crisis, it has led to numerous inaccuracies and exaggerations, especially when it comes to the impact on food supply and retail food prices.
“When it comes to the Renewable Fuel Standard for ethanol and other biofuels, now is not the time for changes,” he adds. “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. 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.”
The Organization for Economic Cooperation and Development (OECD) meanwhile, says the United States should consider lowering its targets for the use of corn in alternative fuel ethanol, according to a Reuters article this week. The international organization is concerned that the shrinking U.S. crop, coupled with a mandated volume of corn going to ethanol production, could drive global food prices higher, similar to the crisis in 2007 and 2008.