Ethanol and Arkansas

Arkansas corn farmers have rarely had it so good. I should know. Due to surging corn prices, our family farm in Independence County has been reporting profits unseen for some time. So are Americans eating more corn?

Well, no. The corn boom has been driven by demand for fuel, specifically ethanol. Problem is, it’s not consumers who are driving the demand. In 2005, Congress mandated that 7.5 billion gallons of ethanol be incorporated into the nation’s fuel supply. It takes about 21 pounds of corn to make one gallon of ethanol, so the ethanol mandate created an enormous new source of demand for corn. The increased demand caused the price of corn to rise rapidly, which is why Arkansan corn farmers have reason to love ethanol mandates.
Of course, livestock is fed with corn. Already, the 2005 ethanol mandate has increased the price of corn feed for chickens, cows and pigs. If Congress passes an increased mandate, feed would become even more expensive. Ultimately, these costs would be passed along to consumers in the form of higher prices for livestock products.

Basic economic theory teaches us that higher prices lower demand, which, in turn, contracts the market for the good in question. According to a report from Iowa State University, expanded ethanol production would decrease poultry production in America by 6%. Pork production would decline by 4%. An ethanol mandate may be great for corn farmers, but it would be horrible for the livestock industry.

Ethanol mandates also pinch consumers. Nationwide, prices of a number of staples are up because of the higher cost of corn feed. According to The Washington Post, beef prices have surged 5%, eggs are up 18% and milk is 3% more expensive.

Northwest Arkansas Times