There are many things out there that I am not an authority on, and corn subsidies are one of them. I have friends who are authorities and I enjoy trying to learn from them. Here is my lay understanding of the situation.
Because the government started subsidizing grain production some time long ago, farmers that wanted to be sure they would have money at the end of the growing season (not always guaranteed in the honest version of farming) could grow corn, wheat, soy and cotton and, if there was no market, our taxes would keep them flush on the supply side of market with no demand. As a result, the government became the biggest buyer of corn around, so they started looking for places that these grains could be unloaded. They subsidized research on alternative uses and learned things like that you can feed it to cows (as long as you pump them full of antibiotics because it will make them very sick.) With subsidies for corn an incentive for easy money, the market was flooded with this unwanted product. But the subsidized research resulted in the discovery of plenty of uses for the surplus (think high fructose corn syrup, and look at the ingredients of any food in a bag) with often disastrous consequences to the health and waistlines (though deceptively, not the wallets) of our nation.
It is a logic best illustrated by the actions of Catch 22's character Milo Minderbinder, who dips cotton balls in chocolate because too much of it has been purchased and the soldiers have to eat it, since it's already been paid for after all.
There is an article in the Wall Street Journal today explaining that big auto, Ford and GM, are making a big push to make vehicles that work on Ethanol, which is one of the many ways to use all the extra corn. Now whether Ethanol is a viable fuel source depends on which side you are on. The corn guys love it, the ecologists hate it, and this government thinks it's a viable alternative.
No one disagrees, though, that it costs way more to make corn into fuel, if you count in your dollars paid from our taxes to subsidize corn. That, even with the corn subsidies, it would cost the consumer more to run his/her car on ethanol and that, if the horrible system of subsidies finally ended, it would cost at least three times what oil currently does.
Last week GM ran its first national advertising campaign promoting one of its so-called flex-fuel vehicles, the Chevy Tahoe. Ford last month began selling flex-fuel versions of its popular F-150 pickup. Vehicles that are designated flex-fuel are capable of running on gasoline but can use the alternative E85, a fuel mix that is 85% ethanol and 15% gas. WSJ 1/10/05
Ford and GM combined plan to produce 650,000 vehicles this year that can use E85, which currently costs about $2 a gallon. Vehicles that run on ethanol -- which is distilled from corn and grain -- are less fuel efficient than gasoline, in the order of 25%, according to the U.S. Department of Energy. The average cost to operate a Chevrolet Monte Carlo, for example, using E85 is $1,578 compared with $1,344 on gasoline alone, according to the Energy Department's fueleconomy.gov. The gasoline version emits an estimated 7.6 tons of greenhouse gas per year compared with 5.6 tons for E85. WSJ 1/10/05
Auto executives note that ethanol is never going to be a complete replacement for gasoline because ethanol production isn't sustainable on a mass level. But if some fraction of gasoline could be replaced by ethanol, even 10%, that could have a significant impact on foreign-oil dependence. Critics are concerned about the economic equation. Ethanol is heavily subsidized, from federal dollars given to farmers to the 51 cents a gallon given to companies blending the fuel. But corn is just one way to create ethanol, and research continues that will allow it in the future to be made from anything that was once green, including sawgrass, rice straw, tree bark or sugarcane waste, to name a few examples. WSJ 1/10/05
Toyota officials said they haven't produced ethanol-capable vehicles here because they haven't needed the credits for government fuel-economy requirements. Toyota doesn't believe that corn-based ethanol is an environmentally friendly or sustainable solution, said Bill Reinert, national manager of advanced technology for Toyota's U.S. operation, but the company's opinion could change if ethanol is successfully made from other materials. WSJ 1/10/05
Some studies, particularly a recent one by Cornell University, have suggested that producing ethanol from corn costs more energy than it creates, when the diesel fuel used by tractors and the production of fertilizer and other factors are considered. NYT 1/07/06
At this point, I think we are all aware that Ford and GM are in an enormous amount of trouble in their own businesses, and I like to take the view that that is because they are bad at their business. Having lived through Iococa, I also believe the government helped them become bad. Either way, they are failing. By the way, Toyota is hugely successful.
I totally understand GM and Ford thinking this is a way forward. Ethanol is easy for two reasons: most cars already work on it (and, if not, the modification is easy) and the idea of making fuel from corn is a marketing dream. Sadly, it will take government involvement to make it accessible, and subsidies to keep it cheap, as inefficient as it is. It is a horrible idea. Buy a Prius and, if the American automakers don't start making sound, smart, forward-looking (the model T ran on ethanol, this is not new technology born of a concern for fossil fuel dependence) business decisions, let them fail. Please, let's not be fooled again.
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