Want Cheaper Food? End the Ethanol Mandate


Photo credit: Image talk:Walmart exterior.jpg / / CC BY-SA

Walmart has not had a good year so far. In an email leaked earlier this month, the company's vice president of finance and logistics grumbled that "February (month to date) sales are a total disaster… the worst start to a month I have seen in my… 7 years with the company."

Why is the nation's largest retailer struggling so much? In today's Wall Street Journal, Forbes publisher Rich Karlgaard notes the retailer's sales problems and points to a couple of reasons why the company is having so much trouble. The expiration of the payroll tax cut, which for the last few years has reduced take home pay levels by about $80 per month for families making $50,000 annually, is probably one factor. But Karlgaard also points to the role of food price inflation:

Food prices are rising faster than overall inflation. Inflation is the great hidden tax, especially when it hits essentials like food. Core inflation is running at about 2%, but the U.S. Department of Agriculture predicts that food prices will be up 3%-4% in 2013. This will nip at Wal-Mart customers and Wal-Mart itself, which now gets half of its U.S. revenue from groceries. Will Wal-Mart eat the inflation and hurt its profit, or will it pass it onto its customers and risk driving them away? Food inflation presents no good choices.

Food price inflation is indeed complex, and there's no simple way to prevent it. But there is a single step that government could take that would almost certainly significantly arrest the rapid rise in the cost of food: end ethanol energy mandates.

Photo credit: ~jjjohn~ / / CC BY-NC-ND

There's very little question about whether or not ethanol subsidies and related mandates, which essentially pay farmers to grow fuel instead of food, drive up the price of food. Ethanol policy hits corn directly, but because corn is so integral to the rest of the food production process, a rise in the price of corn quickly results in a rise in the price of other farm commodities such as meat, poultry, dairy, and soy products. When the Congressional Budget Office looked at the impact of ethanol subsidies on overall food prices between April 2007 and April 2008, the nonpartisan scorekeeper found that 10-15 percent of the 5.1 percent rise in food prices, as measured by the Consumer Price Index, could be attributed to ethanol subsidies.

The CBO noted at the time that it was difficult to precisely estimate the impact of ethanol subsidies going forward. But in early 2011, corn prices spiked after a crop shortage, which many analysts expected to translate into higher food prices. And over the years, ethanol subsidies, along with a renewable fuel standard which pushes energy producers to include ethanol in their products, has resulted in what the Farm Foundation describes as a "persistent demand shock." Some 40 percent of the nation's annual corn crop is now redirected into ethanol production.

Congress allowed direct ethanol subsidies to end in 2011, but the renewables standard remains, and it's by far the bigger factor. Even modest changes in ethanol policy could have a big impact. Last summer, three farm economists at Purdue University estimated that even if we just partially relaxed the renewables standard, corn prices could drop by as much as 20 percent. (That could also help ease the impact of rising gas prices, another factor that Karlgaard names as hurting Walmart in his oped, by increasing fuel economy.)

It's not just American consumers who would benefit. It would also help stop the rise of food prices worldwide, which harms poor and developing nations. The global impact is big enough that last summer, the World Bank suggested that an immediate easing of the renewables mandate could prevent a world food crisis.

Whether we're talking about America or the rest of the world, the reality is that higher food prices hit the poor the hardest — not just because they have less overall but because they spend a much larger portion of their incomes on food. The ethanol mandate is essentially a tax on the poor, in the U.S. and elsewhere. 

Ending the ethanol mandate wouldn't fix all of Walmart's problems, or put a stop to rising food prices, and its impact might not be felt immediately due to the farm production cycle. But over time, it would probably restrain the rise in food prices, helping Walmart's business and making life better for Walmart's customers. 

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  1. Every leftist government in the history of the world from old Soviet Russia up through Mugabe and Castro has used starvation of its opponents as a political weapon. You can’t starve your political opponents if food is cheap and available. These people want food prices to be high and they want the majority of the country to go without. That way they get to choose who eats and who doesn’t. Now that is real power and what they want.

    1. Actually, those who would go without are mostly their supporters, anyway. I think it may be more a case of ensuring dependency on the government to provide for them, so they don’t stray in their support of big government.

      Also, ethanol lets the better-off progtards feel good about themselves. So what if brown people have to starve? They’re saving Gaia!

      1. I think it is mostly a case of doing shit that sounds good at the time (i.e. making progtards feel good) without regard for the consequences, combined with stupid farm bill crap.

        1. Agreed. There’s very little evidence that most politicians have the foresight and patience to follow through with either of the plans mentioned by John or WTF. Never attribute to evil that which can be adequately explained by incompetence, and so forth.

  2. Proof number 1,237,514 that the proglodytes hate human beings. Every time these stupid fucking fucks fuck with a market they fuck it up.

  3. You can’t stop ethanol because humans are icky and the whole universe would be gazillions times better if the whole human race never existed.

  4. No, no no. Everyone knows global warming caused this.

    tl;dr version: We took our projections for temperature, assumed that the Army’s 2003 regulations were a good fit for ‘workers’ and assumed that average worker in 2010 could only do 90% of the outdoor manual labor an average worker in 1950 could do if they were working at the average temperature.

    The Supplemental Info is good for another WTF.

    1. Holy shit. As someone who has done plenty of outdoor labor in the past, an increase of a degree or two makes no damn difference at all.

      Does their premise also imply that warmer winter temperatures will increase outdoor manual abor productivity due to a reduction in cold stress?

      1. As best I can tell, it makes no account for milder temperatures allowing longer working periods during, say planting season for farmers.

  5. “The ethanol mandate is essentially a tax on the poor, in the U.S. and elsewhere.”
    So wealthy westerners can ‘feel good’; sorta like banning DDT.
    Brown or black people starve or die? So what! The shitheads of the world get to ‘feel good’.

    1. So they’re kinda like accidental misanthropes? They don’t purposely hate humanity, it’s just a side effect of ‘feel good.’

  6. Here is one for you. The tanker MTM Hong Kong recently left the port of Tampa after bringing in a load of ethanol from Jamaica. I have also seen bulk carriers bringing dried corn into port Manatee. We are having to import corn and ethanol.
    I will probably get swatted for this because no one is talking about this for a reason.

    Btw I’m sure this is impacting jamaican rum prices too

    1. And here’s a reference…..=477959800

      1. Damn. Every time I think I have a handle on what is available online, somebody points out an amazing new thing. Thanks for wasting my afternoon, mr lizard.

        1. There’s smart phone apps too complete with google maps overlay. All large vessels are required to carry AIS transponders which give their real time location, and dimensions. Check out hot spots like Houston or Singapore

  7. I don’t think that there is any conspiracy or ill intent here. I see the government more as a blind idiot bumbling around and randomly fucking with stuff. Individual members of government have intentions and plans, but taken as a whole, there is no big plan.

    1. And all the while government is yelling “I’m helping! I’m helping!”

    2. Oh there is a plan, and leaves with you just enough to survive. The trillionaires will once again rule the world…. finally again. Now that they have swept away those pesky American dreamers.

  8. Good thing I don’t eat grains at all. Peasant food.

  9. Walmart has not had a good year so far. In an email leaked earlier this month, the company’s vice president of finance and logistics grumbled that “February (month to date) sales are a total disaster… the worst start to a month I have seen in my… 7 years with the company.”

    How does someone not go to jail for releasing insider financial information?

  10. The tanker MTM Hong Kong recently left the port of Tampa after bringing in a load of ethanol from Jamaica.

    I was under the impression imports were verboten. Importing cane sugar ethanol from the Caribbean makes more sense than using corn.

    Getting rid of ethanol as a motor vehicle fuel altogether makes even more sense than that.

    1. I don’t think you understand the amount of US corn (40%) being turned into ethanol. That is 150 Jamaicas.

  11. Core inflation is running at about 2%

    Yeah right that is believable. the CPI says health care, which is 1/5th of the economy only went up 3.6%….anyone even remotely believe health care rose less then 4% last year?

    Pure lies.

  12. 42% of the domestic poultry industry is now foreign owned (was 2% 5 yrs ago). Mostly due to the ethanol mandate raising the cost of feed.
    More bankruptcies coming! Look at where your fuel and food cost have gone. ADM and other huge farming concerns are loving this windfall. All for who for what?

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