The federal government can do something right now to provide relief to Americans facing higher food prices: Repeal the ethanol mandate. The diversion of one-third of the American corn crop into ethanol production is a direct result of the 2005 law that required gasoline makers to buy 7.5 billion gallons of ethanol — a mandate that the 2007 energy bill President Bush signed in December increases to 36 billion gallons by 2022.
We realize that a repeal is highly unlikely, given that the machinery of government is currently calibrated to move in the opposite direction on biofuels, but as food prices keep going up, pro-ethanol politicians will find it increasingly difficult to justify their position. Food riots in developing countries are becoming more frequent. Wal-Mart’s Sam’s Club has started limiting sales of rice because immigrants are buying all the rice they can and sending it to relatives in countries suffering from food shortages. In the U.S., the Labor Department reported this month that the price of bread is up 14.7 percent from last year. Milk prices are up 13.3 percent.
The production of ethanol is not the only factor driving food prices up. Demand for food is growing in China and India as more people in those countries move into the middle class. Fuel prices are up, making it more expensive to cultivate food crops and transport them to market. A drought in Australia, a major wheat exporter, has sent bread prices soaring.
But demand for ethanol has also had an impact on food prices. It’s simple economics: Farmers have planted a lot of new corn on acres where they once grew other food crops such as soybeans and wheat, and they are selling all of that new corn — and then some — to ethanol distilleries. That means there are fewer acres devoted to food crops, and there is less corn available for feeding livestock at a time when worldwide demand for meat and milk is rising. Less supply plus greater demand equals higher prices.
There is little the U.S. government can do to make gasoline less expensive and nothing it can do about the weather in Australia. The production of ethanol, on the other hand, is directly related to government policies that subsidize it and require its use in gasoline. Absent government intervention, there would be little demand for ethanol. It has a lower energy content than gasoline, it is not significantly cheaper, and it is more difficult to transport to points of sale.
Only a tiny percentage of Americans drive “flex-fuel” vehicles. Most American automobiles cannot run on fuels that are more than 10 percent ethanol, whereas flex-fuel vehicles can run on E85, which is 85 percent ethanol. But even if more Americans drove corn-powered cars, a recent study concluded that turning the entire American corn crop into ethanol would only displace about 14 percent of U.S. gasoline consumption.
Congress has created an artificial demand for ethanol to satisfy the farm lobby, which is one of the most powerful in Washington. To make matters worse, almost every major candidate for president in the last 20 years has supported ethanol subsidies because of the program’s importance in the capital of corn, Iowa, which holds the nation’s first presidential caucuses. Hillary Clinton and Barack Obama are not exceptions to this rule. Both voted for the 2007 energy bill, and both declared their support for ethanol while campaigning in Iowa. Obama, from the corn-growing state of Illinois, has been singing ethanol’s praises for a long time.
But John McCain somehow made it through the early primary gauntlet without going back on his long-held opposition to ethanol subsidies. To be sure, he took a lower profile on the issue and made some comments about how ethanol “makes sense” now that oil prices are so high, but when questioned about these pro-ethanol comments he reiterated his opposition to the federal government’s meddling in the market.
The Iowa caucuses are over, and McCain no longer has any reason to obscure his opposition to U.S. ethanol policy. In fact, he has several good reasons to voice his opposition to the ethanol mandate loud and clear. For one thing, he can point to it as a clear difference between himself and both remaining Democrats. They support a policy that is contributing to higher food prices for Americans. McCain opposes it.