Ethanol: Inequity for Farmers
The spike in farmland prices precipitated by ethanol production and speculation will squeeze out growers of grain and vegetables other than corn. Pro or con?
Pro: Big Corn’s Coup
Since President Bush called for a fivefold increase in ethanol fuel production by 2017, a scramble to snatch up farmland and max out corn production has ensued. The Agriculture Dept. projected that U.S. farmers will plant 90.5 million acres of corn in 2007, a 15% increase over last year and the biggest crop since World War II.
The corn gold rush has caused farmland prices to surge, especially in the Midwest, where the race to buy up land is the most fierce. In Iowa, the country’s biggest ethanol producer, prices have risen about 15% since last year, and the government reports record average-per-acre values across the country. One government study showed property prices averaged $2,160 per acre at the start of 2007, up 14% from a year earlier.
Who wins when U.S. farmland prices spike? Agribusiness, of course. Large industrial farms already benefiting from massive government subsidies for corn and soy crops routinely win out against small farmers. Allowing the big guys to bully the independents doesn’t fit well with the pastoral ideal of preserving the American farm.
This David-and-Goliath phenomenon hinders not only fair competition but also crop diversity. Excessive proportions of U.S. land are devoted to corn and soy, grown mainly with genetically modified seeds drenched in pesticides when they grow into plants. These industrial megacrops cause tremendous harm to the environment and increasingly force the U.S. to import fruits, vegetables, and other grains.
In this landscape, farmers committed to sustainable practices and crop variety have the least chance of securing room to grow. As the trend continues, it is no surprise that only the wealthiest Americans can afford the healthiest produce: organic. With the status quo of government-funded agribusiness, most Americans will fill up on cheaper, conventionally grown fruits, pesticides notwithstanding. Fresh heirloom tomatoes and plump organic peaches will remain out of reach.
Con: Trust the Invisible Hand
Ethanol represents one of the most extraordinary U.S. success stories of our lifetime. Over the past decade, U.S. farmers and entrepreneurs have taken action against expensive oil, building more than 100 ethanol production facilities nationwide. Ethanol reduces harmful tailpipe emissions, pumps new life into our economy, and lessens our need for oil and gasoline from unstable regions.
The homegrown ethanol industry has a positive impact on U.S. agriculture as well. Nearly half of U.S. ethanol plants are owned by farmers and local investors, creating new revenue for these citizens and their communities. Ethanol production has strengthened local corn prices from chronic lows, aiding farm income through the marketplace and reducing the need for government income supports.
The assertion that other crops will find themselves squeezed out of the picture because of ethanol’s demand for corn is shortsighted, overlooks the incredibly productive capabilities of U.S. farmers, and neglects to take into account the remarkable technology innovations in agriculture today.
Further, the ethanol critics’ theory that every inch of cropland will be plowed under to plant corn constitutes an insult to U.S. farmers’ generations of commonsense land stewardship. Farmers understand that not all soil types and climates are conducive to growing corn.
The marketplace signals for balance. Last year, rising corn prices indicated that the market needed to satisfy demand, including increased ethanol production. This year, a larger corn crop means corn prices have dropped and other prices have risen. Next year, some of the 15% increase in corn acreage will perhaps shift toward wheat or soybeans with these prices gaining strength. The market functions as intended, with give and take, not with pendulum swings toward one crop and away from all others.
Cellulosic ethanol, the exciting next phase in renewable fuel production, looks beyond corn to other feedstocks like grain straw, grasses, wood chips, and citrus waste. Every region of the country can play a role in smart, balanced ethanol production through locally available materials.Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.