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Corn Ethanol is Bad for the Economy

Corn Ethanol is Bad for the Economy

US economic experts are warning that diverting so much corn crop to ethanol production is driving up food prices, just when people can't afford it.
OpinionFront Staff
By: Anastacia Mott Austin

Critics of ethanol say that it's a bad idea for a number of reasons. Initially developed as a way to reduce foreign oil dependence, its production actually produces as much or more greenhouse gases than petroleum does.

Economically speaking, using corn crops for ethanol is a disaster waiting to happen. It is leading to a sharp rise in all food prices, coinciding unfortunately, with a pinch in most people's budgets due to astronomical gas prices. For a country on the verge of a recession, this is troubling news, especially for food manufacturing companies. Most processed foods contain some form of corn; its ubiquitous use in packaged foods is well-known. But it isn't just cereal makers who are suffering from the rise in its prices. Feed for cattle and poultry are facing a coinciding increase as well. This is turn raises prices for products like dairy, eggs, meat, and milk. Farmers choosing between corn and soybeans are deciding to plant more of the former than ever before, in effect causing a shortage of soybeans and raising prices of soy. If there's one ingredient besides corn that exists in a majority of food products, it's soy.

The food companies aren't going to take it lying down. Representatives from several major food labels have spent time in Washington recently, lobbying for changes in new ethanol laws. James Thurber, a political science professor at the American University in Washington, D.C., told reporters: "The food and feed people are beginning to realize what it means to have subsidies and tax breaks for the ethanol plants." Several makers of packaged foods have hired lobbyists to help plead their case against the use of corn for biofuel. "They weren't alert to this particular issue. They now are entering a period of active lobbying against the corn-based ethanol people," said Thurber.

The Kraft food company has suffered a 13% net loss in the first quarter because dairy, corn, and wheat prices are soaring. It manufactures a wide variety of foods, including those made with corn, dairy products, and meat. Their chief executive officer, Irene Rosenfeld, had this to say about Washington's push for corn as biofuel: "This was a policy that was well intentioned but has had some unintended consequences that have exacerbated commodity increases in certain parts of the world, causing people to go hungry."

Some economists say they saw this disaster coming, and have been warning against mandates and subsidies for ethanol production for years. But others aren't so quick to point the finger at biofuels in general, just corn. Market observers point out that by employing low-carbon emissions standards to acceptable biofuel options, corn wouldn't make the cut, since it creates just as much environmental damage as petroleum fuel. In addition, without the government subsidies, this fuel would simply be too expensive to be feasible.

Other options could be explored that wouldn't be so costly for the economy or the environment. One idea is to use a crop called switch grass, which has long taproots (creating better carbon retention) and isn't used as a food crop.

In the meantime, lobbyists from admittedly powerful food conglomerates may have some success convincing Washington that the subsidization of this biofuel was a bad idea. Howard L. Simons, writing for the April issue of Stocks, Futures, and Options magazine, puts it more strongly than just a 'bad idea', by saying: "The subsidized production of ethanol from corn was a gigantic policy mistake."