Corn Ethanol is Bad for Business

By Anastacia Mott Austin

Critics of ethanol say it’s a bad idea for a number of reasons. Initially developed as a way to reduce foreign oil dependence, its production actually produces as much or more greenhouse gases than petroleum does.

But economically speaking, using corn crops for ethanol production is just bad business. Using the nation’s corn crop to turn it into fuel is creating a sharp rise in all food prices, coinciding unfortunately with a pinch in most people’s budgets due to astronomical gas prices.

For a country on the verge of a recession, this is troubling news, especially for food manufacturing companies. Most processed foods contain some form of corn; its ubiquitous use in packaged foods is well known. But it isn’t just cereal makers who are suffering from the rise in corn prices.

As corn prices rise, feed for cattle and poultry face a coinciding increase as well. This is turn raises prices for dairy, eggs, meat, milk. Farmers choosing between corn and soybeans are deciding to plant more corn than ever before, in effect causing a shortage of soybeans and raising prices of soy. If there is one ingredient besides corn that exists in a majority of food products, it’s soy. In short, the majority of foods consumed by people all over the world will face price increases.

The food companies aren’t going to take it lying down. Representatives from several major food labels have spent time in Washington recently, lobbying for changes in new ethanol laws.

James Thurber, a political science professor at the American University in Washington, D.C., told reporters, "The food and feed people are beginning to realize what it means to have subsidies and tax breaks for the ethanol plants."

Several makers of packaged foods have hired lobbyists to help plead their case against the use of corn for biofuel. "They weren't alert to this particular issue," said Thurber. "They now are entering a period of active lobbying against the corn-based ethanol people."

The Kraft food company has suffered a 13% net loss in the first quarter, because dairy, corn, and wheat prices are soaring. Kraft manufactures a wide variety of foods, including those made with corn, as well as dairy products and meat.

Chief executive officer for Kraft, Irene Rosenfeld, had this to say about Washington’s push for corn as biofuel: "This was a policy that was well intentioned but has had some unintended consequences that have exacerbated commodity increases in certain parts of the world, causing people to go hungry."

Some economists say they saw the ethanol disaster coming, and have been warning against mandates and subsidies for ethanol production for years.

But others aren’t so quick to point the finger at biofuels in general, just corn.

Market observers point out that by employing low-carbon emissions standards to acceptable biofuel options, corn wouldn’t make the cut, since it creates just as much environmental damage as petroleum fuel.

In addition, without the government subsidies, corn ethanol would simply be too expensive to be feasible.

Other options could be explored that wouldn’t be so costly, for the economy or the environment. One idea is to use a crop called switchgrass, which has long taproots (creating better carbon retention) and isn’t used as a food crop.

In the meantime, those lobbyists from admittedly powerful food conglomerates may have some success convincing Washington that the subsidization of ethanol was a bad idea.

Howard L. Simons, writing for the April issue of Stocks, Futures, and Options magazine, puts it more strongly than "bad idea": "The subsidized production of ethanol from corn was a gigantic policy mistake."