Yet Another Unintended Consequence Of Ethanol Investments

from the alternative-to-what dept

Although ethanol has been touted as a legitimate alternative to traditional energy sources, we’ve been intrigued by the frequent reports of “agflation”, the soaring price of agricultural commodities, as a result of ethanol subsidies. It’s hard to see what good it is to switch away from expensive oil and gas if the result is simply another expensive fuel that makes other goods more expensive. As the New York Times notes today, interest in ethanol has helped push the price of Midwestern farmland to new heights. This is good news if you happen to be sitting on large tracts of land that you’re looking to unload. But if you’re a farmer in any other business than corn, it’s trouble. Small farmers are particularly hard hit. Defenders of agriculture subsidies often argue that they help preserve the farm industry and the way of life that comes with it. But as anecdotes like this show, they mainly help large agricultural conglomerates, while independent farms continue to suffer.

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Comments on “Yet Another Unintended Consequence Of Ethanol Investments”

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34 Comments
Hoeppner says:

lots of farmers in the midwest overproduce by accident. needless to say a good deal of farmers have lots of product they’re never allowed to get rid of because of production caps from the govt.

if the govt. really wanted to lower the price they’d raise the maxium production caps.

not to mention there are some farmers that make the same amount of cash from the subsidies for not using their fields… it’s kinda obvious which path to take there.

Chris says:

Waste

Concerning the issue of wastfullness. After ethanol is produced, the waste products from that process are then passed on to be processed and used for other byproducts. If ethanol were the only thing being produced from that corn, your argument would be very legit, but in reality the waste is effeciently used for other purposes.

Eliot says:

Ethanol = Inefficient

I am stunned at how well the PR campaign worked for ethanol. My wife’s father is a small farmer and this is devastating to him. He has trouble getting food for livestock since corn is so expensive. There are far more efficient ways to produce biofuels then to use corn in this way.

Ethanol was a bizarre plan that the government put into place to artificially help farmers without having to adapt what they were doing. If you look at this article from Engadget it describes a far more efficient process. Though the technology described in the article is a too new to be useful today, there are plenty of other options besides ethanol.

Brian (profile) says:

Eliot is right. Not just ag foods will increase in price – ALL food will.

What do cows eat? Corn (primary grain in feed for all farm animals). But we’ll just import more beef from China? Nice plan.

Sure, you can regrow corn. With water. Lots and lots and lots of water. Water resources are already frightfully scarce.

If ethanol replaced gas, the amount of farmland needed to convert to corn crops would cause such a shortage of other crops their prices would rise dramatically.

Small farmers? Where? That lifestyle? Farm-Aid didn’t work, and there aren’t many small farms any more. Lots and lots of corporate conglomerate farms have long since bought most out. Disagree? How many small farmers contribute to the massive PR machine? Then who does?

The corn subsidies are in jeopardy without the ethanol myth. Before ethanol refining was on the map, those subsidies brought us the obesity epidemic in this country a la high fructose corn syrup. It’s also all but killed off domestic sugarcane farming, which isn’t nearly as bad for you as HFCS.

I could go on and on…. but it’s just a bad idea, plain and simple. Kills me how susceptible the public has become to flashy ads and groupthink.

Anonymous Coward says:

Re: RS article

no one wants a repeat of the Hindenburg (whole reason zeppelins went from hydrogen to helium… an extremely inert gas).

Hydrogen is great, but it is still far too dangerous. To exaggerate my point, you could ask to put nuclear plants in cars as well. Even if everyone said it was safe, you just know there will still be occasional mishaps. Same with hydrogen, except just dangerous.

Hydrogen fuel would be better for things other than for fueling vehicles piloted by morons going 80mph in a 25mph zone.

mac84 says:

Government is backing one horse and probably the w

Subsidies to produce ethanol are wrong headed and only exist because there politically expedient (they appease the farm lobbies, ADM and the farm state representatives). All the arguments I hear for Ethanol subsidies are that they reduce demand for evil fossil fuels or evil Imported oil.

If a reduction in oil consumption is the desired effect, a much more direct way to do that is with a tax on oil. Then use the tax revenue to provide research funding for all alternative sources and storage technolgies like solar, hydrogen fuel cells, battery technology, nuclear, as well as ethanol. Maybe even use some of that tax to rebuild some structurally deficient interstate bridges.

Joe Smith says:

subsidies

One of the problems with subsidies is that they encourage investments that would never be made in a free market, locking the government into continuing the subsidies of facing complaints from all the little piglets refusing to let go of the public teat.

In the case of ethanol, the subsidies are promoting investments in farming and in productive capacity which make no sense without the subsidies. It seems likely that more efficient processes based on bio waste are going to emerge (and would emerge sooner but for subsidy schemes) and when they do the investments in corn based ethanol will be worthless but the government will keep on paying the subsidies.

JB says:

Ethanol from Corn wastes fuel!

Elliot and Brian are hitting just the tip of it all. Funny that sugarcane is much more efficient in the making of ethanol then corn.

Don’t get sold by this, it take nearly then same amount of energy to produce ethanol from corn as is available from the resulting product.

Then – The energy is less so MPG is less (transport more gas).
Then – The Ethanol can not be piped, so truck it (uses more gas)

It keeps going folks. Learn the truth, it is not really ethanol that needs to be the problem – but ethanol from Corn will hurt us all in the long run.

The Man says:

Corn

while we are figuring out how to create a cleaner fuel and then distribute that fuel, let us use oil resources in the US so we are not dependant on foriegn oil. We have plenty of reserves to drill here. We also have more “dirty oil” in Nevada than located in the middle east. Really, I don’t think the deer in Alaska mind to much if we drill a couple holes.

When thinking “Green” about our fuel source, Corn seems worse to me than oil. To produce enough corn that we could replace oil, we would need to plant corn on every bare dirt patch in the US. Corn on every acre of land is much more disruptive to the natural habitat of animals than drilling a small hole in the ground.

Oil will be replaced as our primary fuel when it makes sence in the market rather than our bleeding little hearts. Guess who will be leading the charge to the new fuel when the market dicates a change……evil big oil. Do you think that any of the giant oil corps are going to let themselves go out of business? And actually, who better to lead the change than companies that have large amounts of speculative money available to invest in change. You think a couple of hippies, even if they event the perfect fuel, will be able to convince auto makers to develop new engines and then create a national distribution network. Those hippies will need big oil companies to supply the cash.

The worst thing you can ever find to replace a product is a product that is used for something else. Especially when that something else is the base food for tons of things. Garbage of some sort would be the ideal oil replacement.

Brian (profile) says:

Re: Cleaner and Cheaper

Is it really cheaper to import ethanol once the transport cost is factored in? Today, we import crude oil not gasoline. Most gasoline is refined in the US.

Last I checked, Brazil is smaller than the US by about 13%. In order to replace gasoline with ethanol, all of Brazil would need to be bulldozed and planted with corn. Who needs rainforests! Because Ethanol is better for the environment!

My new Impala has an E85 Flex-Fuel engine. Although I got an insane deal, E85 cars still cost more than their petro-only counterparts. Here’s the truth: it’s the same engine. Ethanol is more corrosive than gasoline so the engine, sensors, etc have extra corrosion-resistant coatings. Replacement parts come at the same extra premium.

Ethanol is more expensive than gasoline at the pump, and isn’t even for sale in my state! In order for the math to work out so ‘Ethanol is cheaper than gas’ you must factor in the “Volumetric Ethanol Excise Tax Credit”. If Ethanol were the standard, how long do you think the tax credit would last? Pray there isn’t a drought and Ethanol will cost triple…

If Ethanol gives you 20mpg, the same amount of gasoline gives 30mpg. So it takes 30% more of a more expensive fuel to equal gasoline? Cheaper? Cleaner?

For the love of all that is holy (and my sanity) please do some research before simply embracing a slogan just because it makes you feel all warm and fuzzy.

Facts says:

Act On It

Brazil uses sugar cane mostly, and it is one of the leaders in alternative fuels. They develop/grow a huge percentage of their fuel on their own. Should we be concerned more about the cost at the pump? Or, a cleaner environment? I would pay $1 to $5 per gas tank if it meant that I would be polluting less than if I was using Oil/Gas.

Brian (profile) says:

Re: Act On It

It isn’t the price at the pump so much, it’s the price of everything else. Yeah, $3/gal gas sucks, but $3/gal ethanol to go buy a $20 hamburger and fries sucks more.

Ethanol made from sugarcane costs roughly $1 less per gallon than ethanol produced from corn – at the pump IN BRAZIL. You still haven’t figured out how much it would cost (or better yet HOW) to transport enough ethanol from Brazil to replace the 140 billion gal of gas used in the US per year.

Yes, more ethanol can be produced from sugarcane than corn. At a FAR greater cost! Why aren’t the corn-subsidy folks pushing cane? Instead of Big-Oil, start thinking in terms of Big-Corn. Same motive at work. I’m in Louisiana, and our sugarcane industry is in dire straights. They’ve been trying for years to push their ethanol potential, but the simple FACT is that it IS NOT economical to produce.

In fact it takes more energy to refine a unit of ethanol than the amount of energy generated by that same unit of ethanol. Hello? This thing on?

The bright side to high oil prices means that it IS finally economical to employ the technologies necessary to extract the harder-to-refine oil still in US soil. Drill away…

Anonymous Coward says:

I agree with the people who spoke against ethanol for fuel. Hydrogen and plug-in electric aren’t the solutions either, for many reasons.

All that is just a BS way to divert us from the real issue.

We need to use much less fuel of every kind for cars and trucks. Drive less, smaller vehicles, lower horsepower – many of the things Europe has been doing for decades.

But heaven forbid!

Not one politician has the guts to say that!

If you want a shock, look up the current price of gas/petrol in Europe today. In 1993 I paid more than $2.50/liter.
1 gallon = about 3.8 liters do the math.

Paul says:

Re: Re:

This guy has the right idea.

If we want to focus on efficiency, their are other factors involved other than just the type of fuel.

The type of car and the method of driving are two big factors.

Your MPG could increase by 15% by driving 55mph instead of 65mph. Engines become less & less efficient the faster you go.

Cars that can go 0 to 60 in a couple seconds are pointless. That type of speed/acceleration isn’t needed.

Everyone is focusing on how to make alternative energy more efficient so it can match our requirements. How about we lower our requirements? Use CFL or LED light-bulbs. Turn off appliances when not in use (better to use a power strip and completely turn off power to the appliance where applicable, a lot of appliances still consume energy even while off)

If we become more efficient on our USE of energy, we will require less of it.

Fuel, cars, electronics, etc. are all working on becoming more energy efficient… …why aren’t we?

"ill" duce says:

Ethanol is a corporate welfare plan

Those of you from the South may remember that there were large sugar cane operations that operated in the south for many years previous to the 1960’s. Brazilian ehtanol is not imported because it is illegal in order to protect eh American/cornanol market.
The idea that the American Farmer still exists is a joke. Americans have such a limited grasp of Economics and the actual workings of the system that they still convince themselves that the majority of farmers are not corporations. The PR flacks at Fleishman-Hillard pat themselves on the back every time Joe Sixpack wistfully talks of the importance of the family farm.

Don’t forget that the gallon of ethanol produced here in the states is subsidized so if your saying there is a 1$ difference between domestic and imported, you have to also factor in the subsidy.

This same type of thing happened before the first world war when wheat prices went through the roof and everybody wanted to get into the wheat business. What happened? after the price fell, the land went fallow and eventually we were left with a huge natural catastrophe known as the dust bowl.

Anonymous Coward says:

Re: Ethanol is a corporate welfare plan

“Americans have such a limited grasp of Economics and the actual workings of the system that they still convince themselves that the majority of farmers are not corporations. The PR flacks at Fleishman-Hillard pat themselves on the back every time Joe Sixpack wistfully talks of the importance of the family farm.”

I’m not sure who is the one with the limited grasp….i hear people say the family farm is dead in America but frankly the facts just aren’t there to support this consipiracy theory that corporations control the majority of farming in America.
According to the United States Department of Agriculture, ninety-eight percent of all farms in the U.S. are family farms that produce 86% of all agricultural output in America. Overall, ninety-one percent of farms in the United States are considered “small family farms” (with sales of less than $250,000 per year)

Sluggy says:

No way

This article is misinforming. Agricultural farmers of all kind benefit from agflation and high corn prices because prices of crops across the board are at record highs because of it. Look at commodity prices! Anyone growing anything, practically, is making money right now. Cattle is different. Ranching and farming are different things and different businesses. Yes, people involved with livestock are suffering because of high grain prices across the board.
Also, to say you’d rather fuel your car with corn because it keeps money out of the Middle East is absurd. The real opportunity cost of agflation, which is the result of increased corn subsidies in the US, is that hundreds of thousands of people from every corner of the globe will no longer be able to afford food because of the price increases not just in grains but in the livestock and livestock products (eggs, milk, cheese, meat) that depend on those higher priced grains. Who knows how many more people will starve around the world because Americans want to keep money out of the hands of folks in the middle east without considering the repercussions and ramifications. I mean, comon. Corn isn’t even an efficient source of fuel! I have lived for years in the Middle East (as an American). They are rich already for the most part over there and will continue to be rich because of worldwide increased demand for oil. USA switching to ethanol won’t keep money out of the middle east. The money will just come from other countries. Rather, this strategy of ‘keeping money out of the middle east’ will simply add to the ever increasing humanitarian crisis the world over.

Sluggy222 says:

As i said...

For producers like Germain Dauk, 2007 was a make-or-break season. Speaking to CBC News from his Naicam area farm, about 100 km east of Saskatoon, Dauk admits he was almost ready to throw in the towel.

Increased costs and poor crops had pushed him further into debt, but rising grain prices have more than offset increased production costs and Dauk said farmers who managed to harvest a decent crop this year are feeling a little more flush.

“It will allow us to catch up for the past five years that we’ve had losing years and hopefully it will help to offset some of those losses,” said Dauk.

The Canadian Wheat Board’s Bruce Burnett predicts that the good market conditions will likely continue. He said demand is outstripping supply and that will have a positive effect on the price of grain.

“[It’s a] great time to be a farmer,” said commodity analyst Larry Weber.

“Yes, input costs are going up but grain prices are going up almost every week. And we’re going to be on the precipice of three to five years of decent farm income.”

Despite the rosy forecast, Dauk, who also chairs a roundtable on pulse crops, said farmers can’t sit back and simply enjoy this period of high prices.

“We have to use that year collectively as producers, as government, to map out the future to prevent us going through these difficult times again,” he said.

Despite the good times, Kelvin Meadows, an official with the Saskatchewan Canola Development Commission said there’s also a negative side to rising grain prices.

He said the market situation has split farmers into “haves” and “have nots.”

Farmers who were fortunate enough to harvest a good crop now have money in the bank and are paying off bills. But those who lost crops because of hail, gophers or adverse weather are hurting, Meadows said.

“Those that didn’t [fare well] are now trying to find money for expensive new seeds to be replaced,” he explained. “They’re looking for money to either buy fertilizer or try to figure out how they’re going to buy $600 fertilizer next spring … the stress level has certainly come up.”

Analysts are predicting that grain prices will remain high for at least two more years.

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