Comment: Ethanol has been a huge success

Source: By GEOFF COOPER, RFA, The Courier • Posted: Wednesday, April 20, 2016

Alan Guebert’s recent column (“Ethanol’s supersized role in agriculture, April 10”) asks, “Where would the nation, its farmers, livestock growers, and rural America be today had ethanol not been given … a role in U.S. farm and energy policy during the last 25 years?”

This is an important question to consider, as farmers enter the planting season facing gloomy projections for farm income and decade-low commodity prices. Unfortunately, however, Guebert gets the answer all wrong.

He bemoans that federal policies have “encouraged farmers to produce first, then figure out what to do with the market-splattering surplus.” But this is exactly the hopeless market dynamic ethanol and programs like the Renewable Fuel Standard have reversed over the past decade.

Between 1990 and 2006, producing corn was a losing proposition. In all but one of those 17 years, the average farmer’s cost of producing a bushel of corn was higher than the returns earned from selling that bushel. As a result, U.S. farmers became increasingly reliant on government payments as a source of income — and as a means of survival. Fortunately, the emergence of the ethanol industry over the past decade helped transform the corn market from a state of demand stagnancy, giant surpluses and growing reliance on the taxpayer to a state of healthy demand expansion, higher value and plunging government payments.

And that rising tide has lifted all boats. The value of U.S. crop and livestock production in 1990 was $83 billion and $90 billion, respectively, and net farm income totaled $46 billion. By 2013, values for U.S. crops, livestock and net farm income hit record levels of $233 billion, $182 billion and $123 billion, respectively.

Guebert also laments that as the ethanol industry expanded farmers “redirected American acres toward corn … and away from other crops like cotton, wheat and oats.” Apparently he believes acreage for these other crops would have increased or remained at pre-1990 levels had it not been for the emergence of corn ethanol.

This argument ignores the multitude of other factors that influence commodity markets and annual planting decisions. Chief among them is the inexorable march of technology and productivity, changing consumer preferences and basic supply-demand fundamentals. Since 1990, the average yields per acre of wheat, barley, oats, sorghum and cotton have increased 20 to 25 percent. Productivity increases for these crops have generally outpaced demand, which in many cases has slowed in response to evolving consumer preferences. Thus, considerably fewer planted acres of these crops are needed to satisfy demand. Meanwhile, the average corn yield per acre has grown 42 percent since 1990.

Given these productivity gains, farmers were faced with two choices: significantly reduce planted acres or build new markets for the additional production. Fortunately, they chose the latter route and invested in the build-out of the ethanol industry, which not only added value to their corn but also brought stable, high-paying jobs to rural communities across the country. It is not an exaggeration to say that because of ethanol there is a considerable amount of productive farm ground engaged in crop production today that might have otherwise been sold off long ago to residential and commercial real estate developers. And that means a generation of farmers has been able to stay on the land.

So, where would agriculture be without ethanol and the RFS? Probably in the same place it was before ethanol’s major emergence a decade ago — stagnant demand, huge commodity surpluses, crop prices below the cost of production, rising reliance on taxpayer-funded farm payments, a faltering farm economy and a continued exodus of young people from rural America.

Yes, the 2016 outlook for row crop agriculture is not pretty as planters start rolling across the Corn Belt. Increasing surpluses and lower commodity prices are reason to be concerned. But just imagine how much worse things would be if America’s farmers hadn’t had the vision and fortitude 25 years ago to build the ethanol industry from the ground up. Now is not the time to reverse course on what has been an extraordinary success story for U.S. agriculture and rural America.