Speaking of political bullcrap that doesn’t solve the problem, did you notice this little piece of news this morning?
Spiraling corn prices have squeezed profits and stressed the U.S. ethanol industry in recent months - a phenomenon that threatens to destroy hope that American farmers could help end the country’s dependence on oil imported from hostile nations.
So let’s see now, the government meddled in the corn market, promising the people it would solve the oil crisis, and promising Big Corn scads of money and favors. Only now, the law of unintended consequences comes and bites them all in the butt, because it doesn’t change the oil situation and the Big Corn isn’t making money anymore (despite all the taxpayer dollars they’re sucking in). Imagine that.
In June, VeraSun Energy, one of the country’s largest ethanol producers, recently delayed opening three new ethanol plants because of “volatility in the market,” and a Citigroup analyst predicted last month that nearly three-quarters of U.S. ethanol plants could face a possible shutdown in coming months as profit turns negative.
“One of the main reasons for high ethanol prices is that the cost of the feed stock has been soaring,” said Jerry Taylor, senior policy analyst at the D.C.-based Cato Institute. “When corn prices go up, its going to make it more expensive for an ethanol processor to make ethanol from corn.”
By the way, it makes food more expensive too. But what the heck, the world runs on fuel not food. Be quiet you whiners. The government has this all figured out
“If you’re dependent on oil from overseas, you have a national security issue,” Mr. Bush said at the International Renewable Energy Conference in Sao Paulo, Brazil. “The vast majority of ethanol is coming from corn, and that’s good. That’s good if you’re a corn grower. And it’s good if you’re worried about national security. I’d rather have our corn farmers growing energy than relying upon some nation overseas that may not like us.”
The government spends roughly $7 billion in ethanol subsidies annually. Yet as food prices skyrocket, the prospect of corn ethanol becoming a significant alternative to foreign oil is diminishing.
That’s a problem. I’ve got an idea. Let’s start importing ethanol! Yeah!
As corn and ethanol prices skyrocketed, cheaper sugar-based ethanol from Brazil has become competitive in the U.S. market, despite a 54-cent-a-gallon import tariff.
“After the price of ethanol gets over about $2.50 per gallon, it still pays for Brazil to export ethanol to the United States,” said Joel Velasco, chief U.S. representative of the Brazilian Sugarcane Industry Association.
“With prices in the U.S. approaching $3 per gallon, despite the fact that we have to pay about 50 to 60 cents of tariff coming in, it is still worthwhile to export.”
Current prices for ethanol in the United States average roughly $3 per gallon. Mr. Velasco said that if prices remain high, Brazil will boost its production with the expectation of exporting to the United States.
They can make it in Brazil, have a big tariff added to it, then ship it thousands of miles and still make a profit? And we can’t grow it here and make a profit? Hmmm… I smell the heavy hand of Big Government screwing up yet another part of the American economy. Who would’ve imagined we’d become dependent on foreign ethanol too?
All snark aside, this is an eye opening article, and if you’ve never paid much attention to the whole ethanol thing you might look at it. I doesn’t matter which party is waving the magic wand passing the laws, saying the magic words making promises to the American people, and spreading the fairy dust big gobs of taxpayer money around. If the answer is Big Government, the answer is WRONG.
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July 18th, 2008 at 12:22 am
If you’re interested in eye-opening facts about the extent of government involvement — at all levels of government — in the U.S. ethanol and biodiesel industries, have a look at the two studies prepared for the Global Subsidies Initiative:
Biofuels - At What Cost? Government Support for Ethanol and Biodiesel in the United States
and
Biofuels - At What Cost? Government Support for Ethanol and Biodiesel in the United States - 2007 Update
On the GSI website you can also find studies on subsidies to the biofuel industries of Australia and the EU.
July 18th, 2008 at 4:47 am
I’ll leave your links in but with this caveat:
I am a hard core unbeliever in government subsidies, particularly for this sort of thing. If it takes the government shaking down the citizens and giving it to some outfit to prop up an idea that won’t be accepted on its own merits, or fly under its own power, it is NOT something the government out to be doing. Ranks right up there with payments to not grow certain crops, and bailouts of big corporations and banks. Let ‘em fail.
July 19th, 2008 at 12:40 am
BillH, that sounds as if you have not opened the links and looked at them. If you do, you will find that the studies are highly critical of the nature and extent of government involvement in the industry. And the reports have been read by a lot of people — including Congressional staff. We count, so far, over 350,000 downloads of the original study. Here is a quote from another blogger in respect of the update:
July 19th, 2008 at 7:25 am
GSI, no, I didn’t read the links. On my side of this sleepy little blog in sleepy little Boise I’m juggling the balls of my life as fast as I can. It only LOOKS like I’m retired!
Perhaps I’ll put them on my Saturday morning coffee list.
July 19th, 2008 at 7:34 am
[…] And then, if there’s still coffee left in the pot, The Liberty Sphere has a Second Amendment News Roundup. Oh yeah, there’s also some links to reports on government subsidies in the comments of my ethanol post. […]
July 20th, 2008 at 7:21 pm
MMmm coffee…. From Costa Rica….