Updated: Bill would link corn supply to corn-ethanol RFS mandate

By Holly Jessen | October 06, 2011

A coalition of seven ethanol and agricultural organizations responded swiftly in opposition to a bill introduced in the U.S. House of Representatives, that seeks to alter the renewable fuel standard (RFS) by linking the corn supply to the requirements for corn-based ethanol. The Renewable Fuel Flexibility Act was introduced by Reps. Jim Costa, D-Calif., and Bob Goodlatte, R-Va. The goal, they said, was to give relief to livestock producers, dairymen and consumers. “The renewable fuel standard has been incredibly successful in replacing a portion of the oil we import with home-grown energy, and I continue to support RFS. But our continued reliance on corn-based ethanol has impacts,” said Rep. Jim Costa.  “While ethanol is not the only factor I am convinced it is a factor in the high prices farmers pay for feed and consumers pay for food.”

Industry supporters came together immediately, sending a letter to the bill’s creators on Oct. 5, the same day it was introduced. It was signed by the American Coalition for Ethanol, the American Farm Bureau Federation, Growth Energy, National Corn Growers Association, National Farmers Union, National Sorghum Producers and the Renewable Fuels Association. “The U.S. ethanol industry is an integral part of job creation and economic opportunity throughout rural America,” NCGA President Garry Niemeyer said.  “This legislation would put progress made by the ethanol industry in jeopardy and we are asking members of Congress to oppose its passage.”

The letter pointed to a July 2011 analysis completed for the International Centre for Trade and Sustainable Development, which found that corn prices would have been exactly the same in 2009-’10 and only 18 cents a bushel lower if both the RFS and Volumetric Ethanol Excise Tax Credit had not existed. In addition, most of the 18 cents was attributed to VEETC. “Thus, implementing an RFS waiver trigger based on the stocks-to-use ratio will not have the effects on corn prices desired by livestock and poultry interests,” the letter said.

Costa and Goodlatte, on the other hand, called it “common-sense legislation” that deals only with corn ethanol, not advanced biofuels, they said. The bill is endorsed by the American Meat Institute, the Grocery Manufacturer Association, the National Cattlemen’s Beef Association, the National Chicken Council, the National Pork Producers Council, the National Turkey Federation and Oxfam America. It also has support from California groups including the California Poultry Federation, the California Cattlemen’s Association, California Dairies Inc. and California Milk Producers Council.

If the bill is made law, the mandated level of corn-based ethanol would be determined twice yearly, with the administrator of the U.S. EPA reviewing biannual USDA reports on corn stocks-to-use ratios. When certain stocks-to-use ratios are met, the EPA would issue a waiver to the corn ethanol portion of the RFS. (See stocks-to-use ratio chart provided by Costa.) “The stocks-to-use ratio shall be the exclusive factor in the Administrator’s final determination with respect to the waiver unless the Administrator provides clear and compelling evidence that such a waiver would not have a material effect on the quantity of corn available for use for food and feed,” according to a summary of the bill on Costa’s website.

Geoff Cooper, vice president of the RFA, called the approach dangerous and misguided. “History shows the ratio is, at best, a crude and highly volatile indicator of market conditions that is not fit to serve as a mechanism for important public policy decision-making,” he said.

It’s an imprecise ratio that can change dramatically from month to month. A look at the USDA’s early estimates reveals a history of underestimation, with the agency’s first estimate of stocks-to-use significantly lower than the final estimate in each of the last three complete crop years. Monthly fluctuations can be extreme. For example, the 2009-’10 ending stocks estimate fluctuated by 460 million bushels in just one month. (See Calculated Corn Stocks-to-Use Ratio and Monthly Estimate of Corn Stocks-to-Use Ratio charts.)

The bill would be harmful to U.S. consumers while reversing significant gains made possible by the RFS, said ACE Executive Vice President Brian Jennings. “The RFS is the single most effective policy enacted by Congress to increase supplies of domestic, affordable and clean biofuel and reduce foreign oil imports,” he said.  “Not only would this legislation retreat back to when foreign oil comprised more than 60 percent of U.S. demand and increase fuel prices, it would once again require taxpayers to subsidize the production of cheap corn merely to benefit meat packers and grocery manufacturers.”

Besides which, the system of Renewable Identification Numbers (RIN) credits already provides flexibility within the existing RFS. Obligated parties can use exess RINs to comply with RFS obligations, rather than physical gallons, if high corn prices reduce ethanol production, the letter from ethanol industry supporters said. “As much as 20 percent of the 2012 RFS (equivalent to 2.64 billion gallons, or 950 million bushels of corn) can be met with excess RIN credits,” the letter said.

NOTE: The last half of this story was inadvertently cut off when it was first posted to the website.