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Corn Growers Don’t Need the Corn Ethanol Mandate

Corn Growers Don’t Need the Corn Ethanol Mandate

Thursday, January 28, 2016

 

Corn growers don’t need the corn ethanol mandate.

Here’s why.

The corn ethanol mandate, created by Congress in 2005 and expanded in 2007, requires refiners to blend more and more ethanol into gasoline.

But there is already a “natural” marketplace demand for ethanol. If there were no mandate, gasoline refiners would still blend corn ethanol to boost octane and as an oxygenate to lower tailpipe pollutants. 

How much corn ethanol would be used in our cars if the mandate were repealed?

About 13 billion gallons, a recent study found – the same amount that must be blended under the corn ethanol mandate.

And the U.S. is not the only market for corn ethanol. In 2014, we exported 824 million gallons of it. 

Designed to boost the price of corn, the corn ethanol mandate has always been bad farm policy as well as bad energy policy.

What’s more, the mandate is not the primary way we boost farmers’ income.

Thanks to farm subsidy programs, corn growers can elect to receive a federal guarantee that ensures that their crop revenue won’t fall too far. This Agricultural Risk Coverage (ARC) program, enacted as part of the 2014 farm bill, makes a payment to a farmer if the average revenue earned by corn growers in their county falls below 86 percent of the five-year Olympic average (excluding the highest and lowest two years).

About 90 percent of corn growers take this guarantee. And almost 10 percent elect to receive a different price guarantee for most of the corn they grow through another program created under the farm bill, called Price Loss Coverage (PLC). It sets a target price of $3.70 a bushel for corn. If market prices fall below that, the taxpayer makes up the difference.

Most corn growers also buy federally subsidized insurance to protect against drops in revenue. Unlike the Price Loss and Agricultural Risk Coverage programs, which are free, farmers must pay part of the insurance premium – but only one-third, on average.

As two leading farm economists recently noted, subsidy programs like ARC and revenue insurance are belts and suspenders – that is, growers can get paid twice for the same loss. In some years, corn farmers may also collect marketing loan gains when the harvest price of their crop is less than the rate of their government-backed loans.

In other words, corn growers have government-subsidized revenue and price protections that make the corn ethanol mandate obsolete.

Since there is “natural” market demand for corn ethanol and corn growers have other government tools to protect their income, why doesn’t Congress eliminate the ethanol mandate, as Sens. Diane Feinstein (D-Calif.) and Pat Toomey (R-Pa.) have proposed?

It can’t be because of jobs.

In Iowa, only 1,500 people earn a living making ethanol, according to a recent study.

In the absence of the corn ethanol mandate, refiners will still have powerful marketplace incentives to continue blending corn ethanol into gasoline, so those jobs will not be at risk.

 

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