Corn Ethanol Loses More Support

Rising food prices are prodding lawmakers in Washington to rethink support for corn ethanol.

Two dozen Republican senators on Friday — including Republican presidential candidate John McCain (R., Ariz.) — asked the Environmental Protection Agency to ease requirements mandated by Congress in 2007 to blend more ethanol and other renewable fuels into the gasoline supply.

The lawmakers said the mandates are contributing to a sharp increase in food prices. Sen. McCain has been a critic of ethanol subsidies.

"With the price of everyday meat, chicken, bread and eggs rapidly increasing, we are asking the EPA to use the flexibility that Congress gave them, because so many families cannot afford the increasing prices at the grocery store," said Sen. Kay Bailey Hutchison (R., Texas). An EPA spokesman couldn't be reached to comment.

EPA spokesman Jonathan Shradar said the agency "will review waiver requests and respond according to the law."

The move by the Republican Senate group is the latest sign that Washington's support for turning corn into motor fuel is wavering in the face of soaring food prices, despite the popularity of ethanol subsidies in farm states critical to the November election.

So far, it appears unlikely that Washington, in an election year, will make the drastic cuts sought by critics of U.S. subsidies for corn ethanol. Any loosening of recently passed mandates for increased ethanol production will have to overcome opposition from senators representing farm states.

President Bush also reiterated his support for corn ethanol on Friday. While acknowledging that ethanol is "part of" the reason for high food prices, he disputed the notion that it has been "the main cost driver" for recent food-price increases. "I'd much rather be paying our farmers when we go to the gas pump than paying some nation that may not like us," Mr. Bush said in a speech Friday.

But there are signs that doubts about the wisdom of current U.S. biofuels policy are mounting.

A number of lawmakers are calling for loosening mandates in a recently passed energy law that requires an increase in the use of ethanol and other biofuels to roughly five times their current level — to 36 billion gallons by 2022.

A sweeping farm bill under debate in the Senate also seeks to accelerate the U.S. shift away from corn-based ethanol, by proposing to reduce the current 51-cents-a-gallon credit to 45 cents. Another provision of the bill would create a new credit for so-called cellulosic ethanol — which is made from wood chips, switch grass and other nonfood stocks — of $1.01 a gallon.

Cellulosic ethanol has yet to be proven on a commercial level, and many analysts don't expect a full-scale production facility to come online for years.

There are also signs of anti-ethanol backlash at the state level. The governors of Texas and Connecticut have requested that the EPA issue waivers from the mandate, arguing that the ethanol impact on food prices is too onerous.

At a congressional hearing Thursday, the chief economist at the U.S. Department of Agriculture said that government subsidies to ethanol producers are having a sizable impact on food prices, but that the impact is limited to corn-based food goods and will likely subside over time.

Joseph Glauber told a hearing of the Joint Economic Committee that ethanol subsidies were having an "important impact" on corn prices, directly pushing up the cost of corn-based food. He told the panel that retail food prices increased by 4% in 2007, the fastest since 1990.

Prices are forecast to grow a further 4% to 4.5% in 2008, he said. But he said the ethanol subsidies had little to do with sharp increases in wheat and rice prices.

That has had more to do with the rapid increase in demand from countries like China and India for high-quality foods, and adverse weather conditions in major wheat producers like Australia and Canada, which has severely reduced yields. Mr. Glauber said he anticipated the ethanol impact on the price of corn would moderate over time.

While U.S. lawmakers debate the link between the rapid increase in U.S. corn-based ethanol production and the escalation in food prices world-wide, several large packaged-food companies are hiring lobbyists or using their internal teams to make a stronger case against the use of corn to produce biofuels like ethanol.

A March lobbying-registration form shows that Kraft Foods Inc. has hired Washington firm DLA Piper to lobby on "energy policy and initiatives related to biofuels." An April lobbying report filed by Kellogg Co. discloses that the company has been lobbying on the subject of "ethanol production," among other things.

In the past week, Kraft — which makes its namesake cheese singles, Philadelphia cream cheese and Oscar Mayer meats — posted a 13% drop in first-quarter net income amid surging costs for dairy, wheat and other commodities. Kellogg posted a 1.9% drop in first-quarter net income as price boosts didn't completely offset the surging costs for ingredients and a higher tax rate.