February 9, 2012

Do Farmers Benefit from Biofuels?

Dennis Keeney

Dennis Keeney

Visiting Scholar

Center for a Livable Future

This is the tenth blogpost in the series, “Corn-Fed Cars: On the Road with Ethanol.”

Biofuels, particularly corn-based ethanol, offered the promise of large financial returns to both the farmer and to the rural community. Have these promises been realized? And how have the small-scale farmers fared against the land barons?

Locally sourced biofuels offer potential financial benefits:

  • Increase in corn (and other starch grain) prices and oil seed prices, resulting from increased demand
  • Opportunity for investment in infrastructure through stock options or cooperatives
  • Greater employment opportunities for rural community

Potential drawbacks include

  • Increase in land and input prices, resulting from high corn prices
  • Increase in cost of animal feeds, resulting from f high corn prices
  • Costs of infrastructure to local governments
  • Wear and tear on roads
  • Enhanced air and water pollution from nitrate and pesticides
  • Biodiversity issues associated with trend toward row crops

Backlash and Risk

Financially, biofuels have turned out to be a bit of a slippery slope. To ensure their success, the government subsidized their production and marketing. This led to backlashes when food prices rose; the rise in food prices occurred, in part, because of the increase in corn prices. The public relations fallout was unexpectedly high. In recent years, as federal and state budgets have tightened, the press, animal producers, and some political leaders have launched a public offensive against biofuels, costing the farmer credibility and support when the farmers need it most. Oil producing states have been particularly aggressive in criticizing biofuels.

A truism in agriculture is that profits abhor a vacuum. Theoretically, agriculture is a purely competitive industry. When high profits happen in a competitive environment such as agriculture, prices will rise elsewhere to even out the profits; everyone wants some of the action. Land prices and land rental costs have doubled or tripled in some of the most productive areas of the U.S. Not to be outdone, input prices (machinery, pesticides, fertilizer and fuel) have skyrocketed. At the end of the day, net profits have changed little. But risks have increased. And the increase in risks is not good for agriculture. When smaller-scale, less-leveraged farmers risk and lose, they go broke, and their land is taken over by larger units. Not only are people’s lives put on hold, but smaller-scale farms and farmers lose out to large, well-financed land barons.

Outrageous Claims and Bankruptcy

Even with government backing, ethanol and biodiesel production has been high risk, leading to failures of ethanol plants. Bankruptcy hurts all who have vested interest in the plants, and many farm families have ended up with worthless stock. While “buyer beware” should be the principle of investment, government encouragement of investment led to many farmers to make unwise decisions.

Ethanol plants especially were touted as sources of employment for the local community. Outrageous employment claims were made by industry and government supporters, but have not proven accurate. Economists warned that a typical ethanol plant would only support about 50 jobs after the construction phase was completed. The economists proved to be correct. And the taxpayers were left wondering where all that job development went.

Unintended Consequences

While most refineries have not been a source of point pollution, the high corn prices have encouraged more corn on the landscape, leading to greater potential for nitrate and pesticide in ground and surface water. Pest resistance has increased, especially resistance of weeds to herbicides. The increased amount of corn has the potential to lower biodiversity even further. Economic fallout includes costs of cleanup and costs of moving to far more expensive pest control programs.

As with many economic issues, there is no “control,” so we will never be sure if ethanol and biodiesel had a net positive, negative or neutral effect on the rural economy. Many, if not all, of the negative economic aspects of biofuels were unpredicted and therefore “unintended consequences.”  At any rate, they happened, and retracing ours steps is not possible. But they should be recognized and quantified as much as possible. Agricultural policy that is based on what has happened in the past will be much more likely to be correct than policy based on perceptions and politics.

<< Previous blogpost (No. 9) in the series—Biofuels: Innovations Needed<<

<<Blogpost No. 8—The Cellulose Quandary<<

<<Blogpost No. 7—Corn Ethanol: How Much Energy Are We Actually Gaining?<<

>>Next in the series (No. 11)—On the Horizon: The Future of Biofuels>>

2 Comments

  1. Higher corn prices, partly from biofuels, have brought huge amounts of desperately needed money to rural communities, and that’s not made clear here. Many of the potential benefits have been ignored or treated in reverse, as drawbacks. We also don’t see the larger context here, the savage destruction of rural infrastructure, especially 1981-2006, when corn and similar farmers lost money vs full costs every year (except 1996, USDA-ERS, sum of 8 commodity crops). In chosing, through policy, for the US to increasingly lose money on corn, etc. negative synergies were set in motion, (long term destruction of infrastructure/knowledge-labor-base that formerly supported diversified farming and it’s powerful wealth and jobs creation). So the real question is, did ethanol (higher 2007-11 prices) reverse those decades of destruction (to 1953), unboard-up rural mainstreet windows that have been boarded up for 10, 15, 20 years, etc. No, that would be asking far too much of corn prices that have not yet been as high as 1983 (farm crisis). That would require huge government investments to counteract the enormous negative synergies, created by failed government market management, by choosing to lose money for decades (the direct opposite of OPEC’s use of similar export market clout). Not seen here is that higher corn prices are potentially very good for sustainability and the diversity (wide distribution) and grass feeding of livestock. The livestock negatives hurt CAFOs, except that cheap corn etc. subsidized them by many billions for decades, giving them strength to endure volatility, while the alternative family farm livestock production/marketing infrastructure was largely destroyed. The environmental negatives are also reversed when farmers again need hay/pasture. The naivete here includes extremely weak analysis of corporate special interests favoring cheap corn, and ditto for the economic realitites (ie. price inelasticity) and related policies that created the devastation I’ve described. Let’s not forget the tax loss farm investing of the rich (for the decades of devastatingly low corn price) which today leads them bid up land prices via new purchases to write off their profits. The bad PR for farmers comes from massive united false analysis by the food movement, etc., & this CLF article, is part of the “etc.,” the mystification, as are the others on which I’ve commented. Cf. my blog of 14 examples, “Another Well Intended Farm Bill Failure”. On this last (PR) point, see also “Most EWG Subsidy “Recipients” Are Too Tiny to Be “Farmers”” and “Corn Farmers Have Long Subsidized You, Not the Other Way Around”.

  2. Yes, farmers definitely have benefited from biofuel because of the corn prices are high But we can not ignore this the hunger is first and the fuel is later.

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