USDA, NFU representatives defend RFS during House hearing

By Erin Voegele | May 06, 2014

Representatives of the USDA and National Farmers Union defended the renewable fuel standard (RFS) and ethanol during a recent hearing on the livestock held by the House Committee on Agriculture’s Subcommittee on Livestock, Rural Development and Credit.

During the hearing, Joseph Glauber, chief economist of the USDA, responded to several questions on the RFS and its impacts on corn prices. Glauber noted that from 2005 to 2009 corn consumption by the ethanol industry grew by about 750 million bushels per year. Since that time, corn use by the ethanol industry has remained relatively flat, at approximately 5 billion bushels per year. He stressed, however, that roughly one-third of that corn consumption comes back for feed use in the form of distillers grains.

Glauber also addressed questions on the RFS and its current impact on corn ethanol production. “Corn-based ethanol is a vibrant industry,” he said. While the focus is on the RFS, Glauber said he would argue that the RFS is not the only driver of corn ethanol production. “The fact is, ethanol is priced competitively with gasoline,” he said, adding that blenders value ethanol for its octane value and other factors. “When you see that ethanol is priced competitively to gasoline, not just here but in foreign markets, it goes a little bit towards explaining why ethanol exports have actually been strong as well,” Glauber added. The RFS did help drive capacity growth in corn ethanol industry, he said. What that capacity now in place, Glauber said he thinks “those producers are going to continue to produce ethanol from corn as long as profit margins are there—and profit margins have been there.”

Responding to a question on the RFS’s impact on land use, Glauber again stressed that corn use for ethanol has been relatedly flat. With yield growth, he said that means less land will actually go into producing that volume of corn for ethanol production.

Glauber also responded to a question on recent studies that have suggested corn ethanol is actually worse for the environment than oil. He said recent analyses have actually shown that the impact of indirect land use changes is actually much less than previously thought. He also pointed out that there is a lot of uncertainty with those estimates, stressing that small changes in assumptions for yield growth and other factors have a big impact on the results of the analyses.

When asked his thoughts on whether short-term waivers of the RFS would help reduce corn prices when they rise to unusually high levels, Glauber explained that there are many economic factors that drive ethanol use beyond the RFS. He pointed specifically to the oil industry’s use of ethanol to enhance octane in gasoline.  

During the hearing, Roger Johnson, president of the NFU, also spoke favorably about the RFS. “Arguments that pit the biofuels industry against the livestock growers are counterproductive,” he said.

“NFU supports biofuels production and the renewable fuels standard. Ranchers understand that biofuels don’t just help corn farmers. The success of the ethanol industry helps the rural economy as a whole,” Johnson said. “In 2006, when the RFS as enacted, net farm income was $60 billion, in 2012, net farm income stood at over $112 billion dollars. Meat production is not declined significantly since the enactment of the RFS, although there have been downturns due to drought and livestock prices have increased significantly. Biofuels do not significantly drive up the price of food.” Rather, Johnson noted that the World Bank has pointed to crude oil as the number one determinant of global food prices. “We should reduce our dependence on oil consumption in order to become more food secure and biofuel production is an excellent way to do that,” he said.