Unfair subsidies: Support for ethanol affects other prices

By Mike Kasten

Now that the election is over, I hope we can have a serious debate about the farm bill. The beef industry and meat industry as a whole do not receive price supports or subsidies, and we do not want them. Our prices are determined by good, old-fashioned supply and demand. When prices go below cost of production, we trim our herds back until we become profitable again. In the years we are losing money, the government does not step in and give us price supports. However, we do receive the negative unintended consequences of subsidizing other industries. The ethanol industry is a perfect example of this.

The ethanol industry has many tax breaks: 51-cent-a-gallon tax credit, more than 50 cents a gallon in tariff on imported ethanol plus many state and local tax breaks and incentives. Under the Energy Policy Act of 2005, U.S. consumers are required by law to use at least 7.5 billion gallons of renewable fuels by 2010. What a great business plan. The government heavily subsidizes the production of ethanol and then, by force of law, requires consumers to purchase it.

In the last two months the price paid for calves has dropped by more than $100 per head. Missouri is the second largest cow- and calf-producing state in the United States. This has taken a minimum of $245 million out of Missouri cattle producers' pockets in the last two months.

The main cause of this loss is the increased price of corn due to speculation on ethanol. The United States has just harvested the third largest corn crop in its history. Yet corn prices at harvest have increased by over a dollar a bushel over last year's price.

I do not begrudge corn farmers for receiving a higher price for their crop. However, it is an artificially driven price caused by the high subsidies given to the ethanol industry. The negative consequences to the livestock industry and consumers at the grocery store are going to be significant.

I would like to propose three possible solutions to this problem.

The first one would be to follow the forced-consumption premise of the ethanol industry. We could call this the Mandatory Meat Consumption Act. This law would kick in when the price of corn reaches a point where calf prices are negatively affected. At this point, we would force every person in the country to consume a hamburger a day. The forced consumption would stay in effect until the price of beef went high enough to cover the artificially increased cost of corn. Of course, the increased costs for the pork, poultry and dairy industries would also have to be considered.

The second solution would be to take the money that is paid to row-crop producers in the form of counter-cyclical payments and give it to livestock producers. I don't like this idea, because we then become a subsidized industry.

The third idea would be to take away all the subsidies on the ethanol industry and let it stand on its own. This is my favorite solution. At that point, if corn goes to $10 a bushel, so be it. At least it will be a true market-driven price.

I would like to pose one simple question to all the ethanol supporters: If ethanol is such a good idea, why does it take so many government subsidies to make it a viable business?

Mike Kasten resides in Millersville.