How EPA's Ethanol Cut Could Hurt Taxpayers
Last Friday, the Environmental Protection Agency proposed cutting the Renewable Fuel Standard's corn-ethanol mandate by 3.75 billion gallons from 2014 to 2016. This naturally prompted pushback from the corn lobby. National Corn Growers Association president Chip Bowling said that the "only beneficiary of the EPA's decision is Big Oil, which has continuously sought to undermine the development of clean, renewable fuels."
Of course, there is mounting evidence that corn ethanol is, in fact, more environmentally destructive than beneficial. Moreover, a recent study from Jayson L. Lusk of the Mercatus Center projected that reducing the corn mandate by 20 percent — roughly the EPA's proposed cut — would benefit American consumers to the tune of $855 million per year. In particular, the price of meat would fall, as corn is a major feed product for American livestock.
But while consumers would benefit from cheaper food, reduced corn demand would cost taxpayers dearly. For that perverse outcome, you can thank the Federal Crop Insurance Program.
Under current law, the Department of Agriculture pays about 66 percent of the cost of crop-insurance premiums for producers of corn and other major commodity crops. As of 2012, 86 percent of producers use that subsidy to insure their revenue, rather than their yield. So lower prices ultimately will result in further taxpayer-subsidized crop-insurance payouts.
Removing crop-insurance subsidies would benefit taxpayers by $8 billion a year, though Lusk finds that it also would raise prices for domestic food consumers by about $2.4 billion. Agriculture producers would lose about $2.6 billion.
Beyond crop insurance, the 2014 farm bill also created a trio of federal supports that can kick in if a farmer's revenues fall even 10 percent below baselines that, in many cases, were set in a time of record-high prices. Even more egregiously, both basic crop insurance and these supplemental coverage options flow to only a handful of crops, one of which is corn. According to the Environmental Working Group, 62 percent of farms do not collect subsidy payments, and 75 percent of such subsidies accrue to just 10 percent of farms.
Our nation’s agricultural market is a giant boondoggle, with countless federal incentives and subsidies distorting prices in a multitude of directions while making farmers dependent on the dole. The clamor over the RFS serves as a perfect example, as corn is already one of the most subsidized industries in America.
This is the problem with getting into bed with government. Whatever Uncle Sam gives, he can take away. All one can do is to fly to Washington to beg for mercy.
Lori Sanders is the outreach director and a senior fellow of the R Street Institute in Washington, D.C.