The Corn Conundrum

If you are what you eat, then America is corn. It’s in just about everything we eat: soda, ketchup, English muffins, breakfast cereal, cookies, crackers, ice cream, BBQ sauce… hell, even cough syrup. It feeds the cattle that go into your hamburger. And now it’s going into our gas tanks as ethanol. It’s one of the nation’s most subsidized agricultural products; subsidies to corn farmers totaled about $5 billion in 2006. Recent increases in demand for corn have almost doubled the price – from $2 to $4 in the past two years - but the subsidies remain firmly in place. Why did the demand increase so dramatically? The blame lies within the white walls of the Capitol Building, with the United States Congress, and their desire to score cheap political points by using ethanol as lip service to the obvious need for alternative energy sources. Politicians make ethanol out to be some kind of energy messiah—Senator Charles Grassley of Iowa famously said that, “Everything about ethanol is good, good, good”—and in June, Congress passed an enormous energy bill mandating the production of 36 million gallons of ethanol per year by 2022. This enthusiasm for ethanol is not just misplaced – it’s flat-out destructive. Billions of dollars currently directed to corn subsidies could be better spent elsewhere.

There are four principle uses for US corn: domestic foodstuffs, exports, feed, and ethanol. About 55% of corn production goes to animal feed. 19% is exported, while 15% is used for ethanol fuel, and about 7% is used for the production of high-fructose corn syrup and corn starch. Basic economic principles dictate that given even a rising supply of corn (more corn is being planted than ever before, thanks to the subsidies that reward maximum production) increasing demand for one use will decrease the available supply for the others. Despite record corn planting in the past few years, prices have skyrocketed as corn farmers rush to cash in on the ethanol craze.

Someone is making a killing on corn. That someone is Big Agribusiness. Despite the image of corn farmers as suspender-and-plaid-wearing, tractor-driving, and corn-maze-building, like just about everything else, corn has gone corporate. Corporations like Archer Daniels Midland (ADM) and Cargill reap the benefits of both subsidies and higher prices from increased demand. 80% of corn subsidies go to 20% of the corn growers—that 20% being almost exclusively large corporate farms. Some politicians, like Senator Richard Lugar (R-Ind.) have noted the bizarre subsidy structures: on November 5th of this year Lugar remarked, “Our current system of federal payments to farmers, sold to the American public as a safety-net, actually hurts the family farmer.”

On November 6th, ADM reported earnings per share of 68 cents—up seven cents from a year ago —and quarterly revenues of $12.8 billion, 36% higher than in the previous quarter. For every bushel (about 9 liquid gallons or 56 pounds) of corn they grow, corn growers are paid fifty one cents by the Federal Government under the provisions of the 2002 Farm Bill. The United States grew almost 11 billion bushels of corn in 2006. That’s some serious loot.

It comes as no surprise that laws mandating corn subsidies (the 2002 Farm Bill) and ethanol production as an alternative fuel (2007 Energy Bill) were spearheaded by senators and congressmen from agricultural states—senators and congressmen whose campaigns receive considerable contributions from agribusiness. Archer Daniels Midland CEO Allen Andreas alone has given over $100,000 to politicians of both parties and to special interest groups. The corporation has given almost $4 million to politicians of both parties since 2000.

Members of Congress probably felt that their wisdom and environmental concern would be much appreciated. While it is apparent that alternative energy sources are required to reduce the dependence on petroleum, ethanol is not the best solution. The energy balance of corn ethanol—the ratio of energy in to energy out—is a scant 1.3 to 1. Biodiesel has an energy balance of 3:1; Nuclear Power 4:1; Hydropower and wind power up to 10:1. So while the United States pours more and more of our corn into ethanol – thereby driving up the market price of corn – we waste it on an inefficient alternative to oil and, tragically, eventually make food prices in most of the developing world dramatically higher. According to University of Minnesota economists C. Ford Runge and Benjamin Senauer, one SUV gas-tank’s worth of ethanol requires the same amount of corn as would feed a person for a year.

Subsidized corn is exported to poor nations to feed hungry populations at affordable prices. 19% of US corn production in 2006 was exported, representing two thirds of the world’s corn exports. Exported corn generates its own problems: after NAFTA opened Mexican markets to American corn, subsidized production allowed US corn growers to undercut domestic Mexican corn prices, forcing smaller Mexican corn growers to slash their profits. The reliance on US imports of corn meant that as corn production was diverted to ethanol from exports, tortilla prices in Mexico leapt 60% earlier this year. We’re screwing other countries to benefit domestic corporations—in more ways than one.

Try to import ethanol from Brazil, where production from soybeans (more efficient than corn) has taken off in recent years, and you’ll find stiff tariffs nominally intended to protect domestic farmers. Senator Tom Harkin (D-Ia.) urged President Bush not to relax those tariffs in March of this year, speaking for many members of Congress when he said that, “we would not look favorably on changing our ethanol import policy.”

Politicians have much to gain from their current policies—they take in lots of campaign cash from corn producers, and get to look environmentally conscious when they promote ethanol as an energy alternative to oil. All of the major presidential candidates of both parties are pushing ethanol. Marion Nestle, Professor of Public Health at New York University, notes that “Every administration of which I am aware since the early 1970s when I started paying attention has come into office saying it will stop commodity subsidies. We still have them.”

That’s just corny.