Bill Lapp, former chief economist of ConAgra Foods.

 

 

Ethanol has created an artificial market for corn according to an economist from Omaha, Nebraska.

Bill Lap of Advanced Economic Solutions was a featured speaker at GrainWorld in Winnipeg. Lapp is the former chief economist with ConAgra Foods.

He says he doesn't believe the ethanol industry could survive without ethanol mandates and the U.S. blenders' tax credit.

"Even if we saw cheaper and more abundant corn, there are a lot of people in the world that might have a bid for that corn before the ethanol producer could have it at a profitable level without the support he's receiving from the mandates and tax credits," he says.

Lapp says U.S. ethanol policy is a large reason for increased food prices around the world. Ethanol demand is expected to account for 36 percent of U.S. corn production this year, effectively taking those acres out of food production.

So is biofuel production the best way to achieve energy independence?

"That's a mystery, because every president since President Nixon who said it first 35 years ago, has said they want the U.S. to become self-sufficent in energy. I don't know what the answer is but it doesn't appear in my view to be imposing mandates for the usage of ethanol," he says. "We've displaced only minimal amounts of crude oil imports by virtue of having the ethanol policies in place."

"But the pathway for the production of ethanol is pretty much set for corn-based ethanol. We have a mandate for 12.6 billion gallons this year. By 2015, we'll have a mandate for 15 million gallons," he says. "We shouldn't be in denial that this is creating some challenges. Domestically our livestock producers have faced significantly negative margins and globally we're seeing food prices increase."

Economic models created by Americans Steve Meyer and Thomas Elam indicate that U.S. ethanol mandates have added $2.20 to U.S. corn prices for the current marketing year. So while taxpayers and consumers support the mandate and blenders' credits, are farmers the only "winners" when it comes to ethanol policy?

"Farmers are winners to some degree. If you're a livestock farmer that's not necessarily true, though. And meanwhile, rent costs and fertilizer costs are also increasing," says Lapp.

~ Wednesday, March 2, 2011 ~