Global Policy Forum

US Farmers Urge Obama Administration to Suspend Ethanol Quota Amid Drought

In light of the current drought, US farmers are calling on the Environmental Protection Agency to suspend this year’s quotas for corn ethanol production. Food security experts warn that widespread commodity speculation and the current government mandate, which calls for a production of 13.2 billion gallons of biofuels, will create a food price bubble in early 2013, a repetition of the global food crisis in 2008. If the US government does not take strong measures to reduce ethanol production and regulate speculators, the spike of food price will force many farmers out of business and create a cycle of worldwide food crisis.

By Suzanne Goldenberg

July 30, 2012

The Obama administration was urged on Monday to stop diverting grain to gas amid warnings of an "imminent food crisis" caused by America's drought.

US government forecasts of a 4% rise in food prices for US consumers because of the drought have sharpened criticism of supports for producing fuel from corn-based ethanol.

Meanwhile, research published last week by the New England Complex Systems Institute warned of an "imminent food crisis" because of the diversion of corn stocks to ethanol.

"Necsi has warned for months that misguided food-to-ethanol conversion programs and rampant commodity speculation have created a food price bubble, leading to an inevitable spike in prices by 2013. Now it appears the "crop shock" will arrive even sooner due to drought, unless measures to curb ethanol production and rein in speculators are adopted immediately," the researchers warned.

In the latest move, the country's meat, dairy and poultry producers called on the Environmental Protection Agency to suspend this year's quotas for corn ethanol production.

"The extraordinary and disastrous circumstances created for livestock and poultry producers by the ongoing drought in the heart of our grain growing regions requires that all relevant measures of relief be explored," said the petition to the EPA's administrator Lisa Jackson.

It went on to warn that the requirement for corn ethanol production was further beating up corn prices, which were already at record levels because of the drought in the mid-west.

"We are worried about having enough corn, soybean and other crops at any price to feed our animals," Randy Spronk, the president of the National Pork Producers Association told a conference call with reporters.

Producers were already scaling back production, and some could be forced out of business entirely, said John Burkel, president of the Minnesota Turkey Growers' Association. "Even the most prudent and cautious producer could be put out of business," he said.

Under the EPA's renewable fuel standard programme, oil companies are required to dilute their gasoline with increasing amounts of biofuel every year. This year's mandate calls for the production of 13.2bn gallons of biofuels – almost all of it produced from corn.

Food security experts and international aid organisations have also warned that ethanol could be tightening up supplies and pushing up prices in the global food market during the drought.

Demand for corn ethanol was seen as a key driver of the 2007 and 2008 global food crisis.

About 40% of America's corn crop went for ethanol last year – although the refineries then sell on "distillers' grain" as animal feed.

But with expectations for a smaller harvest this year, there are fears ethanol will consume an even bigger share of the crop.

That will price corn out of reach of livestock producers as well as countries which rely heavily on imported grains, food security experts say.

Ethanol producers have already reduced production by more than 15% this year, and many refineries across the mid-west have closed because of high corn prices.

The National Corn Growers Association, which supports corn ethanol production, said in a statement that it was "premature" to suspend the incentive. "With the crop still in the field, it is too early to determine this year's final corn supply," it said in a statement.


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