Sweetening the Ethanol Pot

By David L. Brown

If there was ever any doubt that a major underlying factor behind the ethanol mania is the desire of the federal government to funnel more cash to farmers, here’s the saccharine truth as reported today by the Associated Press (read it here on FoxNews.com):

WASHINGTON — Congress is hoping that an ethanol industry with an endless appetite for corn will have a sweet tooth too.

Under the farm bill the House passed last month, the federal government would buy surplus sugar and sell it to ethanol producers, where it would be used in a mixture with corn. The program was inserted as a hedge against a looming North American Free Trade Agreement provision, which will let Mexico export unlimited amounts of sugar to the U.S. starting next year.

The U.S. sugar program currently props up sugar prices through a combination of price guarantees and import quotas. Once the limit on Mexican imports expires, the government could be faced with a price-depressing glut of sugar, which in turn could lead to taxpayer-funded government purchases of surplus sugar.

So now another food product may be diverted from its proper purpose, feeding human beings or their livestock and pets, and turned into fake gasoline. Note that the express purpose of this is to prevent sugar prices from dropping in order to benefit producers. The representative who added this provision to the bill is Collin Peterson, who represents the sugar beet producing area of Minnesota’s Red River Valley. The fact that this would benefit a few farmers while punishing several hundred million American consumers who will pay more for processed foods containing the sweet stuff apparently does not enter into consideration.

Actually, the makers of processed foods already mark up the cost of the ingredients they use by such a huge margin that in this case higher sugar costs may not make much difference. That is not the case with corn, which is a major feedstuff for beef, hog, chicken and dairy farmers. Corn farmers are benefiting from the government subsidies being provided to produce ethanol from corn, but the “unintended consequence” is that livestock and dairy farmers are being punished and so are consumers who are already paying more for meat and dairy products.

It is a shame to see valuable foods going into ethanol production, and especially when it could be possible to develop alternatives. In Brazil much of that nation’s fuel needs are already being met by ethanol produced from sugar cane, not the processed sugar itself. Even better, studies have shown that the crop residue from sugar cane production, called bagasse, could be an excellent source for cellulosic ethanol production that relies on crop residues such as corn stalks, straw, wood chips, bagasse, and other byproducts of agriculture.

The administration doesn’t seem to care much for Peterson’s idea. According to the AP story:

Mark Keenum, agriculture undersecretary for farm and foreign agricultural services, said the Agriculture Department tried to sell 100,000 tons of surplus sugar in 2001 for ethanol, but was only able to sell 10,000 tons — and at a significant loss.

“It would lock the department into a management process that’s not been proven to be successful in the past,” Keenum said.

A spokesman for the sugar industry pointed out that the situation has changed, apparently referring to the rapid growth in ethanol capacity and the higher corn costs that have resulted from the new demand. However, even Rep. Peterson admitted that “some amount of subsidy” would be required to make his proposal work. In this model, the government would absorb the cost of buying the sugar at a higher price than ethanol producers would be willing to pay for it.
Tom Harkin, the chairman of the Senate Ag Committee, looks with favor on the idea according to the AP report so there may be a significant chance that it remains in the final Agriculture Bill when it comes out of the Congress.

A voice of warning came from the consumer advocate group Taxpayers for Common Sense. The AP quoted a TCS spokesman as follows:

“This is not exactly the best thing for the consumer,” said Demian Moore, a senior policy analyst with the group who specializes in agriculture policy. “It’s just another subsidy for an industry that doesn’t need to be subsidized.”

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