Ag Secretary ‘Not Worried’ About Effects of Ethanol Subsidy

By Christopher Goins | February 11, 2011 | 9:30 AM EST

Agriculture Secretary Tom Vilsack at the Department of Agriculture in Washington, Wednesday, July 21, 2010 (AP photo)

Washington ( – Agriculture Secretary Tom Vilsack says he supports the extension of tax credits and protective tariffs on corn ethanol and is not worried in the long term about the U.S. economy’s capacity to produce corn for food, fuel, feed, and exports because of it.

“I’m certainly not worried in the long term about our capacity to produce enough corn to meet our food and feed needs as well as our fuel needs,” Secretary Vilsack said Wednesday in a news conference with Interior Secretary Ken Salazar and Energy Secretary Steven Chu held in the Department of the Interior building.

Vilsack said he is not worried about the inflationary effect that the ethanol subsidy might have on food prices.

“Here in these United States, we’re expecting food prices to rise somewhere between 2 and 3 percent, which is relatively moderate,” Vilsack said. 

However, the latest Consumer Price Index report shows that fruits and vegetables rose 1.8 percent in December after a previous decline in November. A two to three percent increase would be nearly double the percentage increase of December prices, according to the latest CPI report.

Vilsack attributed the rise in food prices not to ethanol subsidies but to advertising, marketing, refrigeration, transportation, and other expenses that happen in the food chain. He said he was confident that U.S. corn ethanol policies are raising the price of corn only slightly, according to USDA studies, and that the policy will not damage exports.

The agriculture secretary attributed international price increases to weather conditions and export controls.

“I think there is going to be enough corn for food, feed, fuel, and for export opportunities,” he added.

Vilsack noted that after the biofuel tax credit was allowed to lapse, there was nearly a 50 percent decline in production and there were 12,000 jobs lost.

According to USDA and the National Corn Growers Association, the average U.S. farm price for corn increased steadily throughout 2010, going from $3.40 in May to $3.75 in July to $4.40 in September to $5.20 in December to $5.40 currently (Feb. 2011).

The Agriculture Department says that U.S. corn stocks for 2010/11 are projected 70 million bushels lower this month because of "higher-than-expected food, seed, and industrial use" – including ethanol production.

The USDA’s latest commodities report says “corn used for ethanol is projected 50 million bushels higher than the November final ethanol production estimate and weekly ethanol data indicate record output for December and January.”

In December, President Obama signed a bill extending a credit of 45 cents for every gallon of pure ethanol blended into gasoline, as well as protective tariffs for 54 cents per gallon, costing nearly $1 total.

The corn used in ethanol is only about 5 percent of all production, according to Vilsack.