Even though ethanol has been the primary driver in our industry the last couple of years, the beef industry has always been on the outside looking in on the debate. It makes issues like BSE, country-of-origin labeling, industry consolidation and international trade seem trivial by comparison.
Initially, the argument seemed to be over whether ethanol made economic sense, the answer to which is obviously “no” or it wouldn’t require massive subsidization. So ethanol advocates argued that it might make sense down the road, which ethanol opponents couldn’t much refute. It seemed that ethanol’s support came from the no-harm, no-foul mentality – while it might not help, it’s preferable to pay U.S. farmers than sheiks in the Middle East.
The impact on the livestock industries and/or consumers was easily dismissed because most people miscalculated the size of ethanol’s economic impact. But regardless of whether you pick up the Wall Street Journal, Newsweek or USA Today, the storyline about ethanol has changed today.
It’s no longer simply about the golden era for grain producers but rather the huge costs of this policy on society in general. And the past week provided a prime example of how the rhetoric around ethanol is evolving.
Texas Gov. Rick Perry petitioned the Environmental Protection Agency for a 50% waiver from the federal renewable fuels standard (RFS) mandate for ethanol, in order to gain relief from higher food costs. The grain and ethanol industries responded that rising corn is only a small reason for the increase in food prices. That, of course, will always be the case if one looks at processed foods because the commodity inputs are such a small fraction of the cost.
However, this argument doesn’t have the impact it once did, with farmers anticipating record profits, farm income setting new records, and consumers seeing food prices rise monthly on everything from eggs to milk.
Also this week, Tyson CEO Dick Bond called for Congress to end federal tax subsidies for ethanol production, as well as halt the tariffs that prevent far cheaper and more energy-dense ethanol from sugar from entering the U.S. Certainly, the Bush administration and ADM countered with the claim that the real reason for rising food costs is Mother Nature, rising global demand for protein and skyrocketing energy prices.
At first blush, one could argue that the basic arguments haven’t changed and neither will the results. But the big difference isn’t in the arguments but in people’s attitudes. People’s attitudes about the economy are drastically different than just two years ago.
With the average American paying more and more for fuel and food while disposable income is falling, the willingness to pay for a subsidy that costs everyone and only supports a few is garnering more and more critics. No one is saying the massive subsidization of ethanol is going away anytime soon, or that the ethanol industry is competitive without government interference in the marketplace. But it makes sense that since the ethanol boom was created via government mandate, it will be the government that will move it back toward the marketplace at some point in order to assess its value.
Just the mere fact that ADM, the Farm Bureau and various grain associations are spending a lot of time advancing a set of apologetics for justifying the ethanol subsidies indicates the momentum is changing, even if only at the fringes.
But cattlemen, don’t get too giddy over the prospect that the American people will demand, or our elected officials will act to re-establish, free-market capitalism and move away from buying the votes of one small constituency at the expense of a much larger one. Today’s politicians are weak-kneed when it comes to making the hard decisions. Politicians today no longer advocate the principles that led to our success, but pander unembarrassingly to the culture of consumption that believes there is no real cost as long as that cost can be put off until the next election cycle.
We are a long way from the end of political support for ethanol, but when the marketplace is prevented from functioning properly the eventual outcome is known; it’s just a matter of timing. The tough part is that the eventual shift back to capitalism always creates more economic hardship, which makes it even harder to make the tough choices.