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Inside the Beltway: "Bad Publicity Can't Conceal the Facts"
by Eric Washburn

Finally, at long last, there has been a welcome and profound break in the string of bad “news” stories about ethanol, as the truth has now begun to overwhelm the manufactured bad publicity regarding food prices.

A few weeks ago, in the midst of all the hullabaloo, U.S. Senator Bingaman sent a letter to Energy Secretary Samuel Bodman and Agriculture Secretary Edward Schafer asking them to evaluate the effects of the new Renewable Fuels Standard on food and gas prices.

In the midst of dealing with 1) the request from Texas Governor Perry to the U.S. EPA to waive the current RFS schedule by 50 percent, and 2) the Grocery Manufacturers Association launching of their anti-ethanol campaign, we finally received some good news.

On June 11, Secretaries Bodman and Schafer sent their response to Senator Bingaman, which included the following conclusions:

Domestic Food Price Increases: Ethanol and biodiesel account for only about 3-4 percent of the overall rise in retail food prices;

International Food Price Increases: The RFS has caused the International Monetary Fund global food commodity index to rise from 40.6 percent to 45 percent, instead of the 42 percent it would have hit otherwise;

Gasoline Prices: Without ethanol, gas prices would be 20 cents to 35 cents per gallon higher.

This news comes at a time when world oil prices are above 0 per barrel, world demand is growing, and oil production from OPEC nations is declining. As oil companies struggle to find new oil reserves, world biofuels production now comprises 75 percent of the growth in non-OPEC fuel supplies. As a consequence, Merrill Lynch recently stated in its June 6 report, Biofuels driving global oil supply growth, that “retail gasoline prices would be per barrel higher, on average, without incremental biofuel supply.”

This should not be a surprise to anyone. However, at a moment in our history when American consumers are paying record prices for gasoline, it is nice to have this confirmed by an objective financial analyst. What all this means is that the ill-timed and ill-considered campaign by the Grocery Manufacturers Association against corn ethanol is running full bore into the reality of international fuel and food market economics. It also means that it is almost impossible to imagine EPA granting the waiver request from Texas Governor Perry.

That said, the recent spate of rainy weather throughout the Midwest has not been good news. Farmers are having trouble getting the entire corn crop planted and corn futures reached above per bushel, straining ethanol profit margins. Stay tuned.

 
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The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industryís hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanolís carbon footprint, E10, E15, and mid-range ethanol blends.
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