Drought could lead to end of federal ethanol mandate

Chris Farrell Aug 16, 2012
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Drought could lead to end of federal ethanol mandate

Chris Farrell Aug 16, 2012
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Jeremy Hobson: As the worst drought in 50 years continues to send grain prices through the roof, several governors are asking the federal government to end a mandate that requires some of the nation’s corn to be used for ethanol.

Marketplace economics correspondent Chris Farrell joins us now to discuss. Good morning.

Chris Farrell: Good morning, Jeremy.

Hobson: Chris, first of all, remind us exactly what this federal ethanol mandate is all about.

Farrell: Right. It’s a federal mandate, a federal requirement that of gasoline sold in the U.S., it contain roughly 9 percent of it is ethanol. And you know Jeremy, it was created by politics as mandate — no surprise there I guess. But it was to reduce our dependence on foreign sources of crude oil. Global climate change, a lot of concerns about that. And then, as a way to boost rural communities.

Hobson: So those sound like pretty noble objectives. What’s the problem?

Farrell: The problem is, we have a drought. We have real problems with the corn crop and the skyrocketing price of food. So much so that now we’re talking about a global food crisis. Well, most ethanol in this country is corn-based, and roughly 40 percent of the crop is going to the biofuels industry. And there are increasing calls to suspend the mandate at this time because you know, it’s just not good having corn going into cars rather into the food chain.

Hobson: So basically, if you took away this mandate, farmers would be less inclined to sell their corn to the biofuels industry, and therefore they would be putting more of it into our food supply, which would bring down prices?

Farrell: That’s right. That’s the economics of it, that’s the belief it would at least reduce the demand for the biofuels industry. And I think the politics, Jeremy, are leaning toward suspension. I mean, there’s a lot of concern about global food crisis, G20 talking about having a meeting. You have the cattle industry and other industries are calling for suspension. Bipartisan groups, senators, a couple of governors. So I think this time, a mandate created by politics will be suspended by politics.

Hobson: Marketplace economics correspondent Chris Farrell. Thanks a lot.

Farrell: Thank you.

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