corn, is it all bull?

"This bill is teetering on the edge of survival right now," said Sen. Charles Schumer, D-N.Y.

Schumer said there were some good things in the bill, but he strongly opposes provisions to mandate use of corn-based ethanol in gasoline nationwide and the bill's handling of MTBE, a gasoline additive contaminating water supplies.

The issues of ethanol and MTBE _ along with the bill's overall $31 billion price tag, including $25.7 billion in tax subsidies _ have been at the heart of the Senate debate.

Sen. John McCain of Arizona, one of a half dozen Republicans trying to block the bill, called it a "Thanksgiving turkey" stuffed with goodies for special interests. He is among the GOP defectors on the bill.

And Sen. John Kyl, R-Ariz., said he found it curious that the Senate approved $15 billion in tax breaks, the House gave $17 billion, but the compromise worked out in the final bill would provide $23.6 billion. "Guess who lost _ the taxpayer," he said.

Some compromise!

Good morning, world!

Many or most agricultural subsidies actually work in this way: the government influences demand for the product or demands it directly to shore up the price. This is why a lot of folks get government cheese instead of, say, government bread, and why school lunches are loaded with dairy products; it's how they maintain the demand for milk. (Singing: "Living in Wisconsin now, yeah-ah...") This process has been adjusted somewhat for wheat, becuase they couldn't figure out enough stuff to do with it, and, some time in the late 70s - early 80s there was a huge surplus and some enterprising photographers got shots of huge piles of grain lying about in parking lots, rotting under tarps, being eaten by rats, and sold them to newspapers who ran captions like, "Your tax dollars at work." So for wheat, at least, they went to a target price subsidy, where farmers sell all the wheat they could at whatever price they could get for it, and then the government sends them a check to make up for the difference between the sale price and the target price. Thus we've got gobs of cheap bread these days, and countries like New Zealand which don't subsidize agriculture get very angry at us for undercutting their real prices with our subsidies for them.

Not sure how it works with corn, but I expect that its more analogous to the milk situation, in that the government either has or has manufactured a need for the product. Ag is very, very powerful, indeed.

Setanta, I don't understand why gasohol is being sold in the north, if it cost more, gets less mileage, why would a consumer buy it? And what kind of vehicle is designed to burn an 85% blend?

The the mandate succeeds it will obvoiusly be because somebody's palm got greased.

Re: Appeasment?

And that would be bad, why exactly? Aren't we looking for ways to shift our energy dependence away from the Middle East? Aren't we supposed to be trying to find cleaner ways to get around, heat our homes, etc.?

The milk situation arose from the dairy farmers strike which Kennedy inherited from Eisenhower. The milk producers were dumping milk in the ditches, and people were screaming about 50 cents a gallon, so Kennedy took quick action, which meant that although he was familiar with how the House and Senate worked, he relied upon farm state Congresspeople to work out a plan. The government started buying milk, and then switched to milk products (cheese, butter), because that expanded the effect of the subsidy program. They started accumulating huge surpluses of those products, and then started doling them out during the Reagan years. The Reagan administration tried to solve the problem by buying dairy herds, and then slaughtering them. This was a typical Reagan administration solution, and it was done as much sub rosa as possible. Traditional dairy farmers weren't interested, except for those to inept to make a go at the business (pretty easy, as the original subsidy program stayed in place). Corporate dairy farms (admittedly very rare in those days) were delighted, and so were a lot of scam artists--the "fair market" price the government offered was much higher than the cost of buying heifers and feeding them for six months to a year. At that point, the "milch" cows (most of which had never been in milk) were sold to the government for a tidy profit, and then slaughtered. With the adminstrations gutting of Federal regulatory agencies, DoA didn't have the manpower and resources to catch up, and it was several years before the administration caught wise, and quietly axed the program.

The corn thing is a little more complex. There used to be Regional DoA Research labs, but those were shut down (i believe in the late 1970's). But not before they had made a raft of discoveries for practical, industrial uses for agricultural products. Companies like Archer, Daniels Midland capitalized on the free results of government research (no criticism here, that was the object). I don't believe that corn has ever been actively subsidized (except, of course, for the exploitation of the Soil Bank by most family farmers), but ADM and such businesses made for a high demand for field corn. Illinois is the world's largest producer of seed corn, but a considerable amount of field corn is produced there as well, and it is central to the Iowa-Illinois-Indiana corn belt--so ADM set up shop with a big plant in Decatur. Iowa had always traditionally been the largest producer of feed corn (field corn produced for livestock feed), but boosted production of all field corn to supply the demand of companies like ADM. Ethanol seemed like a dream come true to the Reagan administration. They could bank political capital from agricultural states by encouraging a practice which would increase demand for corn, and at the same time claim they were acting positively to help clean up the environment.

Politics, at the best of times, is truly Byzantine

Maybe so, Scrat. Those are valid goals. Personally, I would prefer a technology that at least has the potential of being accepted on its merits.

I don't know that it does cost more. At any event, gasoline prices have no relationship to the reality of source raw materials (crude oil or ethanol). I believe that Ohio has encouraged the use of ethanol, it remains, after all, a significant agricultural state. The only reason i commented on the 85% ethanol fuel is because i've started to see the pumps in local gas stations--i have no idea what the facts of vehicle design are. The old timers claim the ethanol is bad for the engine, but i think younger people don't pay any attention, and yuppies are city types whose response would be: "Ethanol, corn? . . . what the hell are you talkin' about?" As for less mileage, i've not heard that, and i buy it because i have a fuel card from my employer for a large regional chain of gas stations which puts ethanol in the fuel.

Obviously, this benefits farmers and companies like ADM, so i'd say that political palms get greased. See my comment above about politics and the legacy of Byzantium.

Agreed, though perhaps (and I'm not necessarily convinced this is so) there is some merit to doing something now while we work out what that better solution is. (And perhaps it would make more sense to wait and put the money into that better solution.)

thanks Set, good info

Yeah, there is that. I have always been supportive of the pilot projects around Rifle & Parachute, Co., involved in the production of oil from shale, which would be unattractive without government support. Still, the ethanol project is beyond the pilot stage. I guess I'll say perhaps, too.

Corn and votes
Corn + votes: Bush wants farm votes (big agri-growers and small farmers) and the related large and small business that depend on agriculture.

I would rather grow corn to feed hungry people around the world and put research money into developing viable fuel cell technology instead.

BBB

Funny you should mention Byzantium, set; ag subsidies as a whole were described to me the other day in exactly the same terms.



Gasohol is no more expensive than gasoline in Madison, and I doubt that the price at the pump is subsidized in Wisconsin. It's a dairy state, after all, and anything that creates a higher demand on corn makes feed more expensive.

For, me a clincher of the unreality of fuel prices shows up when i drive to Toronto via Detroit. In Ohio, the pumps state that 40 cents of the price is state tax. In Michigan, the pumps state that 30 cents of the price is state tax. Federal tax is, of course, the same in each state. Gasoline is significantly more expensive in Michigan than in Ohio. It is definitely, in my mind, a case of what the market will bear.

An oddity of gas prices: there are two states -- Oregon and New Jersey -- where you are not allowed to pump your own gas; all gas stations are full-service. And in both states prices at the pump are significantly lower than in neighboring states. (Course in New Jersey this might have something to do with the quality of the air; it seems to me you could take your gas cap off in Elizabeth and drive forever on fumes.)

And it's also a question of different sources of revenue between states -- Washington has no state income tax, so they place a high tax on gasoline; and even differences in political clout within a state -- gas prices in Northern California are high so that gas prices in Southern California can be kept low.

Tangential, though, so I'll back off.



Question for setanta: how the hell do you remember all this stuff?

Thats all too familar for anyone from the EU ... we have (or had) the "milk lake", the "butter mountain" ... etc.

The EU promises guaranteed prices to the farmers, which we pay for in tax dollars - its a policy that prefers building up surpluses while keeping prices at their level over flooding the market with the surpluses and seeing prices collapse. And it's consuming a ridiculous proportion of the total EU budget (70%? 80%?).

Best (not) was when the EU decided to magnaminously "donate" the dairy surpluses for rock-bottom prices as development aid to third world countries - and in doing so bankrupted the indigenous farmers, who didnt stand a chance in hell to compete with those "aid imports".

The agricultural subsidies of the EU and US are the one biggest obstacle in the way of further economic progress of a swathe of developing countries - no wonder they revolted against such practices at Cancun's WTO summit.

Was told one of the reasons EU countries are so enamored of subsidized ag was that all are concerned about food production being controlled by any one country, especially in the event of war. (As if that's ever been a problem before... ). Any truth to that, or is that an over-ambitious reading of the effects of history on policy and popular psychology?

Hmmmmmm - here it is sugar-based ethanol - it all sounds very familiar.

It has been such a pleasure to read a thread full of well-thought-out responses and interesting links instead of plowing through a list of arbitrary statements that leave no room for real discussion.
My thanks to all of you.