March 17, 2010

Ethanol mandates fuel pricey debate in Congress

JONATHAN E

— By . KAPLAN

click image to enlarge

Gregory Rec/Staff Photographer... Andrew Siegel poses with freshly baked breads at the store in When Pigs Fly bakery in York, Maine on Thursday, August 2, 2007. Siegel and his brother Ron Siegel run the bakery, which has been in operation since 1993, uses all natural ingredients and bakes all 15 varieties daily.

Washington, D.C., Correspondent

WASHINGTON — Higher food prices have led some lawmakers to re-examine a federal mandate passed last year that requires refiners to nearly double the amount of corn ethanol used in gasoline.

Critics of the mandate have argued that diverting corn to produce fuel has led to decreased food supplies and increased food prices. Ethanol, largely produced from corn, results in cleaner-burning gasoline.

The Senate Homeland Security and Governmental Affairs Committee on Wednesday examined whether revising or eliminating the mandate to boost production to 15 billion gallons in 2015 from 9 billion gallons this year would curb escalating food prices.

Last week, Sen. Susan Collins of Maine and 23 Republican senators, including John McCain of Arizona, the presumptive Republican presidential nominee, sent a letter to the Environmental Protection Agency asking it to examine alternatives to the standard.

''There clearly is a link between excessive subsidies related to ethanol and the soaring cost of basic commodities that have caused the price of food to jump so high,'' Collins, the senior Republican on the committee, said in an interview after the hearing.

Support for ethanol subsidies tends to cut across party lines. Lawmakers from corn and grain-growing Midwestern states normally support ethanol subsidies while legislators from the East and West coasts are more inclined to oppose them.

Congress first approved a Renewable Fuels Standard in 2005 and revised it upward in 2007.

Sens. Olympia Snowe, a Republican, and Collins, voted for the 2005 bill, while Democratic Reps. Tom Allen and Michael Michaud opposed the measure. All four members of Maine's congressional delegation supported the 2007 bill.

''This is the best example I've seen of the law of unintended consequences,'' Collins said during the hearing.

Some Northeastern lawmakers favor directing more funding to research and development to create the technology to turn products such as wood chips -- rather than corn -- into ethanol.

The problem of rising food prices has sparked food riots, led to government instability around the globe and, coupled with high gasoline prices, caused frustration among American consumers in an election year.

Andrew Siegel, owner of the When Pigs Fly bakery in York, Maine, told the committee Wednesday that the cost of flour he uses in bread has increased from $7,600 per week last September to $15,000 per week. He uses about 50,000 pounds of flour per week.

Collins visited the bakery earlier this week and invited Siegel to testify.

''I think that we will survive this crisis,'' Siegel told the committee. ''My fear is that if all of the above-mentioned factors continue next year, we will not be so lucky.''

Mark Rosegrant, an analyst with the International Food Policy Research Institute, told the panel many factors have led to higher food prices, but that increased ethanol production had added 30 percent to the price of corn.

Eliminating the mandate, as well as a 51-cent-per-gallon subsidy that fuel producers get for ethanol and a 54-cent-per-gallon tariff on imported ethanol, would reduce the price of a bushel of corn by 13 percent -- to $5, said Bruce Babcock, the director of the Center for Agriculture and Rural Development at Iowa State University.

Many factors have contributed to the rising price of food, including the high price of oil and the decline in the value of the dollar, which has made it cheaper for countries to purchase U.S. food exports, according to a U.S. Department of Agriculture report released on Tuesday.

In addition, starting in 2006 investors turned to commodity markets, which trade everything from pork to metals to oil, to diversify their investment portfolios.

''The trading practices employed by many of these funds may have increased the short-term volatility of agriculture prices,'' the report stated.

The Senate committee will hold a hearing later this month to examine whether hedge funds, investment firms and speculators have driven up the prices of commodities ranging from oil to corn to metals.

Washington D.C Correspondent Jonathan E. Kaplan can be contacted at (202) 488-1119 or at:

jkaplan@pressherald.com

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