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Ethanol most important value-added market for grain producers, RFA says


“Ethanol has become the single most important value-added market for American grain farmers, stimulating investment in agricultural technology and enhancing economic opportunities for rural communities across the country,” Bob Dinneen, president and CEO, Renewable Fuels Association (RFA), wrote in a letter this week to the House Committee on Energy and Commerce.


Dinneen’s letter was a response to questions posed in the second white paper, “Agricultural Sector Impacts,” as part of the Committee’s review of the Renewable Fuel Standard (RFS). For details, download the second white paper here (PDF).


The ethanol industry, Dinneen pointed out, has transformed the grain sector “from a stagnating, surplus-driven marketplace to one that is vibrant, high-tech, and demand-driven.” He added, “As a result, the net impacts of the RFS and ethanol production on the agriculture sector have been decidedly positive, and U.S. meat output and retail food prices have not been adversely affected.”


In the letter, Dinneen answered nine questions on topics ranging from commodity prices, job creation, RFS flexibility, food prices, future cellulosic benefits and the impact on global agriculture production and land use.


At the outset, Dineen stressed that the RFS “is absolutely essential for stimulating future demand and driving investment in the next generation of feedstocks and biofuels.” He noted, “Without the RFS to drive future growth in renewable fuels, production and use of renewable fuels would stagnate or regress due to 1) the resistance of refiners to produce and sell gasoline blends with greater than 10% ethanol, and 2) abandonment of investments in advanced and cellulosic biofuels due to the lack of market certainty. As a result, consumers would be denied the additional economic and environmental benefits associated with greater ethanol use.”


Dinneen also wrote that it would be counterproductive for the House Committee to examine only the potential impacts of a single transportation energy option like renewable fuels in isolation from other energy options, such as unconventional petroleum. “Petroleum demand and prices also have important effects on U.S. agricultural and food markets. Every step of the food supply chain is reliant on petroleum products—from the use of diesel fuel in farm machinery, to the use of natural gas in food processing plants, to the use of plastics in food packaging, to the use of gasoline and diesel fuel to transport food to the grocery store or restaurant.


“The correlation coefficient between global food prices and global oil prices since 2000 has been 0.92, which indicates a near-perfect relationship (1.0 is a perfect correlation).We understand that the economic effects of petroleum dependence are outside of the scope of the Committee’s current initiative, but biofuels should not be considered in a vacuum,” Dinneen wrote.


Dineen added, “There is no credible evidence whatsoever to support the notion that the RFS is adversely affecting consumer food prices. Indeed, food price inflation has been falling since the RFS was enacted, and Americans are spending less on food than any time in history.”


The RFA included a chart indicating that there is no correlation between rising ethanol production and food prices.


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