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By Robert Rapier on May 31, 2007 with no responses

The Crumbling Ethanol Facade

I have seen it all now. When the biggest ethanol boosters are starting to suggest that maybe we have a problem, you know we have a problem. And that is exactly what is happening. I can remember U.S. Sen. Chuck Grassley’s giddiness as President Bush talked about his strong support for ethanol during the 2007 State of the Union Address (discussed here). This is a man who has ethanol in his veins (no, I don’t mean he is an alcoholic). So, you can imagine my surprise when I read yesterday’s OPIS report in which he admitted to cracks in the coalition:

U.S. Sen. Chuck Grassley (R-Iowa), one of ethanol’s most ardent supporters, said he is beginning to see “cracks” in the support for the fuel from the livestock community, and believes that renewing the controversial 54cts/gal ethanol import tax may have a tough road ahead.

“I think right now, I see some cracks in the coalition of farmers” supporting ethanol, Grassley said Tuesday in a conference call with reporters. “I see the cattle producers and the pork producers at the national level raising the question” of whether ethanol incentives are still needed, he added. In the past year, livestock producers have seen their corn prices climb as corn-based ethanol production continues its expansion.

“This is what I’m preaching,” Grassley said. “If agriculture doesn’t stand strongly behind ethanol, then it’s going to weaken our political position,” he added.

Grassley, the ranking member of the Senate Finance Committee, believes that ethanol’s tax incentive–currently 51cts/gal–should be maintained until the industry is proven to be mature. “Right now, it’s maturing very quickly, but it’s not a mature industry and we need incentives for it,” he added. Ethanol’s tax incentive is scheduled to expire in 2010, and the import tariff ends a year earlier. “I think we’re going to have a harder time maintaining the import duty than we will the tax incentive,” Grassley noted.

First of all, why on earth would you want to keep imposing an import duty? It penalizes Brazil, making a much more sustainable ethanol product from sugar cane, at the expense of protecting U.S. farmers who are now plowing up everything in sight in order to plant more corn for supporting this artificially induced ethanol boom.

Second, just how long does it take an industry to mature? We have been subsidizing ethanol for 27 years now. The infant is getting a little long in the tooth. Time to kick that freeloader out and make him get a real job. Besides, ethanol is mandated. Why on earth does it also need to be subsidized? Oh, I forgot. We need to keep the true costs hidden and therefore subsidize our driving habit.

But it wasn’t just Grassley’s coalition showing wavering support. Cargill – that’s right – Cargill, one of the biggest U.S. ethanol producers, is also sounding a warning:

Cargill chief in warning over biofuels boom

To read the entire article, you have to be a subscriber of Financial Times, but they give us the first two paragraphs for free:

Cargill’s new chief executive has warned that the boom in renewable fuels could be derailed by a succession of poor harvests, intensifying upward pressure on food costs as land is devoted to energy-related production.

Gregory Page, a 33-year veteran of the world’s largest agribusiness group, reiterated his concern that biofuel mandates and other incentives will distort the allocation of land, with the potential to create food shortages around the world in the wake of “weather-related crop problems”.

Amazingly honest. Of course we will still see some ethanol boosters telling us to move along, that there really is nothing to see here. I wonder if they will maintain that stance when people start starving so we can put ethanol in our tanks?