Ethanol Backlash

There's a good piece here about the rising back-lash against corn-based ethanol mandates. The government is now finding out that mandating more ethanol is putting pressure on corn prices, which has some undesirable unintended consequences. Such as more expensive feed for livestock, which will translate into more expensive meat; more expensive corn syrup, which is the cheap sweetener of choice in just about every commercial food; more planting means more land use and more pesticides.

Corn ethanol seemed unstoppable, but a remarkable thing happened on the road from Des Moines. Just as the smart people warned, the government's decision to play energy market God and forcibly divert huge amounts of corn stocks into ethanol has played havoc with key sectors of the economy. Corn prices have nearly doubled, which means livestock owners can't afford to feed their animals, and food and drink manufacturers are struggling to buy corn and corn syrup. Environmentalists are sour over new stresses on farmland; international aid groups are moaning that the U.S. is cutting back its charitable food giving, and many of these folks are taking out their anger on Congress.

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Things are even hotter in Washington, where lobbying groups are firming up their positions against corn ethanol. The hugely influential National Cattlemen's Beef Association has gone so far as to outline a series of public demands, including an end to any government tax credits (subsidies) for ethanol and an axe to the import tariff on foreign ethanol. Put another way, the cattlemen are so angry that they are demanding free markets and free trade--a first.

Those wacky cattlemen.

Once again, a great example of how poorly considered government rule-making can distort the market.

If we really wanted to increase ethanol use, we would drop the tariff on imported ethanol, a whopping $0.54 per gallon. We could then import Brazilian ethanol, which is made more cheaply than our own. But the truth is, the ethanol mandates are mostly a farm lobby pay-off.