Ethanol from Corn: A Tariff Plus a Subsidy Fattens the Corn Belt by a Few Notches

Long before President Bush's celebrated visit to Brazil and the ethanol agreement with President Lula da Silva, ethanol was being promoted as the magic fuel of the future. In fact, American corn farmers are already receiving subsidies and domestic ethanol producers are protected by a $.54 tariff on every gallon of ethanol imported from Brazil.
      While Iowa's role in presidential elections may have been diminished by the super-primary, it is unlikely that either party will reduce or eliminate this subsidy. Most of these subsidies also go to large corporate farms or investors in refineries, not small farmers.
     Since animals are the major consumers of corn in the United States and many other food products use corn, especially sweeteners, higher corn prices mean higher prices for meat and other food products. This year, increases in wheat and grain prices were attributed to the demand for corn for ethanol and the corresponding shortages of other crops. When the demand for corn for ethanol production doubled the price of corn last year, Mexicans had to pay 50% more for their corn tortillas, causing hardship and sparking unrest.
     While the current high price for oil and a federal subsidy of $.51 per gallon of ethanol makes corn production and ethanol refining highly profitable, that may not be sustainable. Since the price of corn has doubled in the last year, thanks to the increased demand for ethanol, it may be less competitive if the price of oil falls or cheaper alternative fuels are developed.
     Even though the big-three automakers are producing flex cars which can burn gasoline or a mixture of 85% ethanol and 15% gasoline, we would still be dependent upon imported oil for this mixture as well as upon the current gas station infrastructure owned and operated by the oil majors, which continue to make record profits while opposing higher government fuel standards or regulations. Meanwhile, American and foreign automakers are building more hybrids and considering electricity and hydrogen as cleaner and cheaper fuels than ethanol.

Some skeptics claim that it takes more energy to produce corn-based ethanol than the energy derived from it. However, it is generally accepted that it takes the equivalent of 3 gallons of ethanol to produce 4 gallons of ethanol. This is much less efficient than gasoline, which requires only 6% of its energy to produce the final product.
     The production of ethanol also requires the burning of fossil fuels, not only for plowing, planting and fertilizing, but also for transportation by truck, because ethanol corrodes