Corn Commentary

Meat Industry Offers Exaggerated Perspective

Well, just when you think you’ve seen enough on this topic, out comes another “study” that’s being used to try and negatively impact the development of ethanol in the United States. It should come as no surprise that this study was funded by the National Turkey Federation, National Chicken Council and American Meat Institute. It’s titled “Fuel Ethanol Subsidies: An Economic Perspective” (pdf). That would be their economic perspective.

No industry has benefited more from low-priced corn in the last decade than the meat and poultry sector. Here’s some facts sent to me to point this out. Below-cost-of-production feed allowed the broiler chicken industry to save $11.25 billion and the integrated hog industry to save $8.5 billion in costs between 1997 and 2005, according to a February 2007 study by Tufts University. The same major meat and poultry production companies that have been raking in record profits are now criticizing the efforts of American grain farmers to build value and demand for their product.

The AMI study’s claims on the impact of the federal ethanol program are greatly exaggerated. For example, the ethanol industry generated an estimated $2.7 billion of tax revenue for the Federal government in 2006. This is $211 million more than the estimated cost of the VEETC which so many people and groups are complaining about. In addition the ethanol industry generated $2.1 billion of additional tax revenue for State and Local governments. Furthermore, higher corn prices resulting from stimulated demand reduced federal payments to farmers by an estimated $6.7 billion. The ethanol industry creates economic growth and more than pays for itself. And the tax credit program helps sustain investment in a risky and young industry.

The study bemoans that “cost increases are already starting to show up” for common retail food items and blames ethanol as the cause. It is true
that food prices have increased in 2007, but only marginally. USDA forecasts the Consumer Price Index (CPI) for all food to increase 3.5 to
4.5 percent in 2007. This compares to the 25-year average of 2.9 percent, but is significantly lower than the average of 5.5 percent between 1979 and 1990. Additionally, rising energy costs have much more to do with food price increases than modest increases in grain prices. In fact, a recent study by John Urbanchuk concluded, “By a factor of two-to-one, energy is the chief factor determining what American families pay at the grocery store.”

There’s a lot more in this study that really needs to be amended to have any real credibility but then just look at the source. It concludes with a statement that there’s just not a need for a Federal subsidy program to promote ethanol production. That’s certainly not offering any real constructive advice or solution.