Congress to hear ethanol subsidy debate

WASHINGTON -- Grocers and food companies are seeking the help of Congress as they square off against farmers over the role of ethanol production in raising food prices worldwide.

The American Farm Bureau Federation and other farm groups plan to defend government support for ethanol, which they say has helped lower gas prices, in two press conferences scheduled for today.

Trade groups such as the Grocery Manufacturers of America, meanwhile, argue that increased production of corn for ethanol has driven up prices for corn, wheat and other grains. Those increases, in turn, have boosted prices for bread, meat and dairy products.

Congress' Joint Economic Committee will hear from both sides of the fence Thursday, while a House Energy and Commerce subcommittee will hold a hearing on government ethanol policies May 6. Fueling the debate are prices for corn, wheat and other grains that have reached 30-year highs.

President Bush weighed in on the issue Tuesday. At a news conference on the economy, he defended increased ethanol production, saying that "it's in our national interest that our farmers grow energy, as opposed to us purchasing energy from parts of the world that are unstable or may not like us."

The International Food Policy Research Institute estimates that the price of wheat has tripled since 2000 while corn prices have more than doubled. The IFPRI, a think tank supported by governments and private foundations, also concluded that 30 percent of the rise in food prices between 2000 and 2007 is because of increased production of biofuels. About 30 percent of U.S. corn production will go to ethanol this year, the group says.

Industry groups such as the Grocery Manufacturers of America say that while Congress may not be able to control the weather, it should scale back government-mandated ethanol production requirement. Those incentives, they argue, are causing farmers to plant corn rather than wheat and other grains.

"Certainly, reducing the amount of corn (for energy purposes) would have an immediate impact on commodity prices and ultimately on the price of processed foods," said Scott Faber, vice president of federal affairs for GMA.

Faber said the group's members -- including Safeway Inc., Dean Foods Co. and ConAgra Foods Inc. -- are doing their best to absorb higher costs, but most will be passed on to consumers.

In December, Congress passed an energy bill that mandates increasing ethanol production to 36 billion gallons a year by 2022 from 7.5 billion gallons in 2012, although 21 billion gallons are supposed to come from so-called cellulosic ethanol, such as switchgrass and wood chips, while the rest would come from corn.

The American Farm Bureau Federation says ethanol is being unfairly singled out.

"Ethanol's become the whipping boy, but it doesn't deserve to be," said Bob Young, chief economist for the AFBF.

The price of wheat futures has already come down from a high of $13 per bushel to around $8, Young noted, as farmers respond to higher prices by planting more wheat.

On Monday, Sen. Kay Bailey Hutchison, R-Texas, proposed freezing the ethanol mandate at current levels to reduce ethanol's impact on world food prices.

"At one point, expanding biofuels made sense for America's energy security," she wrote in a column in Investor's Business Daily. "But the recent surge in food prices has forced us to adapt."

Separately, a staffer for the Joint Economic Committee said Democrats are considering suspending the tariff on imported ethanol to encourage U.S. farmers to dedicate more acres to food, instead of fuel. Current trade policy discourages U.S. firms from buying Brazilian ethanol, which is made from sugar cane and costs about a third as much to produce as corn-based ethanol.

Democrats are reportedly also considering adjusting the subsidies farmers get for planting corn for ethanol.

The farm bill now making its way through Congress lowers the ethanol per-gallon credit from 51 cents to 45 cents. And it includes a new subsidy, worth as much as $1.01 a gallon, for ethanol made from sources other than corn, including crop residue and wood waste.

But a staffer for Senate Finance Committee Chairman Max Baucus, D-Mont., said those changes were negotiated months ago and were not a response to rising food costs.

Bush criticized Congress for considering a "massive, bloated farm bill that would do little" to reduce food prices.

"It's not the time to ask American families who are already paying more in the checkout line to pay more in subsidies for wealthy farmers," he said.