General Mills CEO: Ethanol Subsidies Must Go
It’s no secret that people in the food manufacturing and distribution businesses are against subsidies for the domestic ethanol industry. A RetailWire poll last month found 94 percent were strongly against subsidies, while only three percent were strongly in favor.
According to U.S. Department of Agriculture, 38 percent of domestic corn production is used for ethanol and that’s too much, according to Ken Powell, chief executive of General Mills.
Mr. Powell told the Financial Times, "We’re driving up food prices unnecessarily. If corn prices go up, wheat goes up. It’s all linked."
While many around the country and in the nation’s capital agree that large subsidy programs such as the one for ethanol no longer make sense in light of current economic realities, politicians, particularly Republicans, appear hamstrung by groups such as Americans for Tax Reform who see the end of subsidies as a form of tax increase.
Americans for Tax Reform came out strongly against a budget proposal put forth by Sen. Tom Coburn (R – OK) Â that would eliminate ethanol subsidies to the tune of $6 billion unless Congress voted to end the Estate Tax (AKA Death Tax).
- Senate Votes to End Ethanol Credit – RetailWire
- General Mills hits out at ethanol subsidies – The Financial Times (reg. required)
- Coburn deficit plan offers $9 trillion in savings – The Washington Post
- Dr. Coburn Releases $9 Trillion Deficit Reduction Plan – U.S. Senate
- Coburn: "I Support Ethanol" – Americans for Tax Reform
- Coburn Amendment half-baked without DeMint Fix – Americans for Tax Reform
Discussion Questions
Discussion Questions: Do you agree that ethanol subsidies are no longer needed? How can the food manufacturing and distribution industries make this happen in light of current economic and political considerations?
Corn-based biofuel production is now the largest single use of our corn supply. Prices for everything that contains corn continues to sky rocket. Even critter food that contains corn has see its price increase by more than 20 percent in the last two weeks.
Ethanol subsidies are no longer needed. Our food supply needs a stabilized corn supply not impacted by corn ethanol production.
Everybody seems to have an ox they gore or cherish. The targeted oxes right now are Ethanol and Taxes. Ethanol subsidies served their purpose but that time seems to have passed. They seem to be pushing prices upward for consumers. Washington has proven that it is politically obsessed with taxation so who knows what will happen next.
I also feel the estate tax should be repealed since it is a tax that taxes monies that have already been taxed. While in this mood, I am reminded of what Justice John Marshall said: “The power to tax involves the power to destroy.”
It is unfortunate that politics and tax subsidies have interfered with US-grown crops like corn. The economics around ethanol are tough to justify when you take into account the cost to refine corn into ethanol. More importantly to Mr. Powell’s point, we are driving up the cost of corn unnecessarily which impacts food at the shelf.
Only when all Americans can afford to eat a nutritious meal 3 times a day do I believe we should explore products like ethanol. Unfortunately, we are far from solving US hunger today.
Subsidies for corn and many other crops are no longer needed. They cost taxpayers billions of dollars and line the pockets of big agriculture. The government could use some of the savings to fund alternative energy/fuel research that utilizes non-food crops or alternative means to help wean the country off fossil fuels.
Ethanol subsidies were good politics and bad business from the outset. The cost of converting food stock to fuel exceeded the value of the product itself. This is another case of government subsidies for goods or services that aren’t in demand by the public and a good case against government tinkering with a market economy.
Food Manufacturers and Distribution companies could be more effective if they were to consider how to compensate the farmers more fairly for the commodity grains that they purchase. If they cannot address this issue, the farm lobbies will be set firmly against the removal of subsidies.
The core issues really focus around special interests and lobby groups whose goals may work against one another. These interests run counter to a free market and cause all sorts of “unintended consequences” within all segments of the economy.
The best advice that I could give would be to pay a little more attention to Adam Smith and remove the politicians from the markets, let the market level set themselves.
A well-intentioned program of providing both a cost-savings to consumers, as well as an environmental improvement platform, has run amok. The ethanol platform that Washington and farm-state lobbyists have fostered on this country represent one of the larger travesties of big government/big environment/big agriculture wastes perpetrated on consumers in the past 40 years.
A corn crop that is near $8 per bushel, which has historical averages that are more than half that figure, simply is not sustainable in feeding a hungry world. Subsidizing ethanol — both in price and in building of new ethanol plants is costing the American taxpayer and consumer tens of billions of dollars in excess costs. At the same time, the Greens should be aligned with the process of eliminating these subsidies as well. We are wasting fuel in trucking ethanol to refiners — these Greens should demonstrate their intellectual honesty on this matter.
Kudos to Ken Powell from the food processor/manufacturing industry for speaking out on this issue. By “shining a light” on this fiasco that is enriching politicians and special interest groups alike, manufacturers, retailers, and consumers/voters, can stand up and say “enough is a enough — stop this nonsense!”
Ending the subsidies while keeping the requirement that gasoline refiners blend a stated quantity of ethanol in gasoline really doesn’t help much. The supply-demand for corn remains unchanged. By my calculation the price of a 90/10 gasoline ethanol blend will increase about 5 cents a gallon. This is a back door tax increase–not saying that is good or bad. EPA rates vehicle mpg based on gasoline but then the government essentially mandates a lower energy 90/10 blend that reduces your mpg.
I have honestly tried to research this topic, but I am reminded of a comment attributed to Harry Truman. When faced with a major economic decision he sought the advice of the top economists. They told him that “on one hand A might happen, but on the other hand B might happen.” In frustration, Truman asked for someone to find him a one handed economist.
It seems the economics and benefits of ethanol production are in the eye of the beholder. Some articles say it can survive without subsidies, others say the subsidies are required. Almost all articles acknowledge that ethanol derived from corn has had an effect on food prices but the magnitude of the effect is greatly debated. In an effort to encourage its development, two factors are at work. The amount of ethanol in our fuel stocks has been dictated and financial subsidies in the form of tax credits have been granted to producers. Who knows how much these factors impact the final cost? Then of course there is China, who is expected to increase corn imports by 20% according to US government projections. There are many moving parts.
Going through this, it seems to me the economic advantage of ethanol is highly suspect. Once you factor in all the harvesting, processing, and transportation costs it does not necessarily save on energy. HOWEVER, it does reduce the use of oil and to the extent it could be used in an emergency to extend the reach of domestic reserves and production it seems to be a technology that gets developed for emergencies. With that thought in mind, my recommendation would be to lower the percentage requirements so there is not so much production but keep the tax credits so there is a profit incentive to improve the technology.