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Industry Groups Push To End Ethanol Subsidies

In a letter Friday, the nation’s largest livestock and poultry trade associations called for the Senate to allow a 30-year-old tax credit and a protective tariff for the ethanol industry to expire on time at the end of the year.

Signing the letter were the American Meat Institute, the National Pork Producers Council, the National Turkey Federation, the National Chicken Council, the National Cattlemen’s Beef Association and the National Meat

“Although we support the need to advance renewable and alternative sources of energy, we strongly believe it is time that the mature corn-based ethanol industry operates on a level playing field with other commodities that rely on corn as their major input,” the groups said in its letter. “Favoring one segment of agriculture at the expense of another does not benefit agriculture as a whole or the consumers who ultimately purchase our products.”

The groups expressed serious concerns over the negative economic effects of government support for corn-ethanol, specifically the Volumetric Ethanol Excise Tax Credit (VEETC) and the import tariff on foreign ethanol.

“The blender’s tax credit, coupled with the import tariff on foreign ethanol, has distorted the corn market, increased the cost of feeding animals, and squeezed production margins – resulting in job losses and bankruptcies in rural communities across America.” The meat and poultry industry employs 6.2 million people, which represents nearly 6% of the total gross domestic product.

The corn use for ethanol production has exploded from 1.60 billion bushels in 2005-2006 to 3.67 billion bushels in 2008-2009, while corn use for feed has fallen from about 55% to about 42%. Use for exports has fallen from 19% to about 15%.

The groups pointed out that a September 2008 report by the Congressional Research Service said the dramatic increase in livestock production costs were attributed to feed. Corn prices between 2005 and 2008 quadrupled, reaching a record high of more than $8/bu. There is no safety net to protect the commodity markets from price volatility.

For the pork industry, the result has been the two most challenging years in the industry’s history in 2008 and 2009. Total losses exceeded $6.2 billion and average farrow-to-finish producers lost about $23/head marketed from October 2007 through January 2010.

Last week, the Congressional Budget Office released a report, “Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals.” In short, the report found producers of ethanol made from corn or similar feedstocks receive 73 cents to provide an amount of biofuel with the energy equivalent to that in one gallon of gasoline. The cost to taxpayers of using ethanol to reduce gasoline consumption by one gallon was $1.78.

“We support energy independence and the development of the renewable fuels industry. However, 30 years of support has created a mature corn ethanol industry that now needs to compete fairly in the marketplace and allow for the next generation of renewable fuels to grow,” the groups stressed.