Committee continues review of Renewable Fuel Standard with examination of agricultural impacts

May 6, 2013

The impact of the Renewable Fuel Standard (RFS) on our nation’s rural economy and agricultural sector has been the subject of many heated debates in recent years as renewable fuel targets continue to rise.

Nearly all the fuels currently produced under the RFS are derived from farm products, primarily corn for ethanol production and soybeans for biodiesel production. The RFS has strengthened demand for domestic corn and soybeans and these crop prices have risen. Some argue that these price increases are directly attributable to the RFS, while others question the law’s effect on other ag segments, including crop and food prices.

The House Energy and Commerce Committee continues its review of the RFS, releasing the second in a series of white papers examining a number of issues emerging with the current system. Energy and Commerce Committee Chairman Fred Upton, R-MI, and Ranking Member Henry A. Waxman, D-CA, are leading this effort to review the law and its implementation and are soliciting input from interested stakeholders. The second, and most recent white paper released last week, addresses the impacts of RFS on the nation’s agricultural sector, including the beef industry.

“Cattle, pork, and poultry producers have argued that the benefits of higher corn prices should be weighed against the costs to those producers,” the paper said.

“Their concerns received considerable attention during the 2012 drought, which reduced corn yields and temporarily sent prices above $8 per bushel.”

The white paper also points out the benefits the RFS has provided for the American corn farmers.

“Currently, about 40% of the domestic corn crop is used for fuel production even as the acres planted have increased. Corn prices, which averaged $2.15 per bushel from 1997 to 2006, have since risen along with the targets in the RFS.

“Thus far in 2013 they have averaged about $7 per bushel, and the U.S. Department of Agriculture projects prices in the $4-to-$5-per-bushel range through 2020,” the paper reads.

Prior to the second white paper’s release, the committee posed a number of questions for stakeholder discussion, including:

1. What has been the impact of the RFS on corn prices in recent years? What has been the impact on soybean prices? Have other agricultural commodity prices also been affected?

2. How much has the RFS increased agricultural output? How many jobs has it created? Have any jobs been lost? What is the net impact on the agriculture sector?

3. Was EPA correct to deny the 2012 waiver request? Are there any lessons that can be drawn from the waiver denial?

4. Does the Clean Air Act provide EPA sufficient flexibility to adequately address any effects that the RFS may have on corn price spikes?

5. What has been the impact, if any, of the RFS on food prices?

6. What role could cellulosic biofuels play in mitigating the potential effects of the RFS on corn prices?

7. What impact are cellulosic biofuels expected to have on rural economies as the production of such fuels ramps up?

8. Will the cellulosic biofuels provisions succeed in diversifying the RFS?

9. What is the scale of the impact of the RFS on international agricultural production and global land use changes?

Seven livestock and poultry groups pooled their comments, sharing the negative effects the RFS has had on agriculture, including the high cost of feed facing livestock and poultry producers.

“The RFS has been the major driver in increasing corn use for ethanol production, and causing corn stocks to decline to crisis levels,” the comments state. “In a market-driven world, ethanol would be priced competitively with gasoline.

That has never been true in the entire history of the industry.”

Additionally, the groups submitted a study to support their comments titled “The RFS, Fuel and Food Prices, and the Need for Reform” completed by Dr. Tom Elam of FarmEcon. The study examined the extensive impact the RFS has had on food and fuel prices.

“Everywhere you look, markets have not been the primary drivers. China, Canada and the EU, once strong proponents of biofuels, have backed away from increasing biofuel production by mandates and subsidies. The U.S. RFS program is by far the most ambitious biofuel mandate in the world, and we have seen the most rapid increase in ethanol production on record,” the letter points out.

“If biofuels were a marketplace phenomenon, driven by business people who see market-based opportunities, we would see biofuel investments without mandates and subsidies,” the letter continues, pointing out the need for RFS reform.

The groups also use the biofuel sector’s strong opposition of reform for their argument.

“If the sector had any faith in its ability to maintain and grow its market based on the merits of its products it would not object strenuously to RFS reform,” it states.

The comments and study were submitted on behalf of the American Meat Institute, American Sheep Industry Association, Milk Producers Council, National Cattlemen’s Beef Association, National Pork Producers Council, National Turkey Federation and North American Meat Association.

In 17 pages of comments, the Renewable Fuels Association (RFA) also responded to the questions.

Bob Dinneen, RFA’s president and CEO, told the committee, “Girded by the RFS, ethanol has become the single most important value-added market for American grain farmers, stimulating investment in agricultural technology and enhancing economic opportunities for rural communities across the country. The emergence of the ethanol industry over the past decade has served as an incredibly important economic catalyst, transforming the grain sector from a stagnating, surplus-driven marketplace to one that is vibrant, high-tech, and demanddriven. As a result, the net impacts of the RFS and ethanol production on the agriculture sector have been decidedly positive, and U.S. meat output and retail food prices have not been adversely affected.”

“…[T]he RFS is absolutely essential for stimulating future demand and driving investment in the next generation of feedstocks and biofuels. Without the RFS to drive future growth in renewable fuels, production and use of renewable fuels would stagnate or regress due to 1) the resistance of refiners to produce and sell gasoline blends with greater than 10 percent ethanol, and 2) abandonment of investments in advanced and cellulosic biofuels due to the lack of market certainty. As a result, consumers would be denied the additional economic and environmental benefits associated with greater ethanol use,” RFA continued in its comments.

According to RFA, there is no credible evidence to support that the RFS is adversely affecting consumer food prices.

National Corn Growers Association President Pam Johnson said in April, “America’s corn farmers stand strong against this attack on the RFS.”

“Close analysis of claims that ethanol production, and thus the RFS, drive up consumer food costs prove false,” Johnson argued. “While some sectors of the nation’s food supply have seen price increases over the past year, many other sectors which also rely on corn, including milk, turkey and pork prices, have fallen.”

Last month, Rep. Bob Goodlatte, R-VA, introduced legislation to eliminate the conventional biofuels mandate of the RFS and cap the amount of ethanol that can be blended into the fuel supply.

“The federal government’s creation of an artificial market for the ethanol industry has quite frankly triggered a domino effect that is hurting American consumers, energy producers, livestock producers, food manufacturers, and retailers,” Goodlatte said.

RFS mandates that 36 billion gallons of renewable fuels be part of our nation’s fuel supply by 2022. Almost all of this is currently being fulfilled by corn ethanol. In 2011, 5 billion bushels of the corn supply was used for ethanol—equal to nearly 40 percent of the U.S. corn crop.

Three subsequent RFS papers are expected to address greenhouse gas emissions, energy policy considerations, renewable identification numbers, fraud and other implementation and enforcement issues. The first covered fuel compatibility issues. — Traci Eatherton, WLJ Editor