IMAGE: CORN FIELD AROUND ETHANOL PLANT
Charlie Neibergall  /  AP
Fields of corn surround an ethanol plant in Mason City, Iowa — a scene repeated across the Midwest due in part to a federal subsidy that rewards farmers for growing corn for fuel.
updated 5/5/2008 12:58:54 PM ET 2008-05-05T16:58:54

Senate Republicans have asked environmental regulators to use their power to halt the country's ethanol output expansion plans amid rising food prices.

Twenty-four Republican senators, including presidential candidate Sen. John McCain of Arizona, sent a letter to the Environmental Protection Agency on Friday, suggesting it waive, or restructure, rules that require a five-fold increase in ethanol production over the next 15 years.

Congress passed a law last year mandating a ramp-up to 15 billion gallons of corn ethanol by 2015 and 36 billion by 2022. But McCain and other Republicans said those rules should be waived to put more corn back into the food supply for livestock, and to encourage farmers to plant other crops.

"This subsidized (ethanol) program — paid for by taxpayer dollars — has contributed to pain at the cash register, at the dining room table, and a devastating food crisis throughout the world," McCain said in a statement.

Despite tough rhetoric from lawmakers, analysts say Congress is unlikely to roll back such a popular program during an election year.

Friedman, Billings, Ramsey & Co. analyst Kevin Book argued in a recent note to clients that Congress will not "turn on the corn belt" because of the significant number of votes held by ethanol-producing states. Ethanol subsidies could face greater risks, however, in 2009 and going forward, according to Book.

Republican Sen. Charles Grassley of Iowa said Monday "ethanol is unfairly taking the brunt of the criticism" for escalating food prices. Grassley's home state is expected to produce a quarter of all U.S. ethanol this year.

Less land for soybeans, oats
Farmers have responded to federal ethanol incentives by planting the largest crop of corn in 60 years, leaving fewer acres for soybeans, oats and other agricultural staples.

Tighter crop supplies means higher production costs for food processors of all types. In one recent example Pilgrim's Pride Corp., the nation's largest chicken producer, said costs rose $200 million in the quarter on higher corn and soybean feed.

And Americans are paying those higher costs at the grocery store, where egg prices have jumped 40 percent in the last year and flour prices have risen 50 percent since January, raising the price of bread and other baked goods.

The EPA has the power to waive or restructure the requirements if they cause unintended harm to consumers or the environment.

"We don't think it's the right move to make," said Liz Friedlander, a spokeswoman for the National Farmers Union.

The group has defended corn-based production of the alternative fuel, saying its impact on the rising food prices has been relatively small. Instead, it says food price inflation is mainly due to higher fuel prices, poor weather conditions and dwindling stockpiles of wheat and other crops.

Industry's rationale
The ethanol industry said Monday altering the biofuels mandate "would drive the price of oil and gasoline through the roof," according to Matt Hartwig, a spokesman for the Renewable Fuels Association.

Ethanol is "one of the only solutions for holding down the price of oil in the long-term," according to Jeff Broin, president and chief executive of Sioux Falls, S.D.-based Poet, the nation's largest ethanol producer.

While nearly all experts agree increased biofuel production by companies such as Archer Daniels Midland Co. and Pacific Ethanol Inc. has contributed to the run-up in food prices, there is little consensus on the scope of its role.

The ethanol industry says ethanol and other biofuels account for just 4 percent of the price surge, while the Department of Agriculture says the figure is closer to 20 percent.

Last week a group of international scientists recommended halting use of crops for biofuel, saying it would cut corn prices 20 percent.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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