In former Sen. Rick Santorum’s recent piece, “Stop the attacks on farmers, homegrown energy,” he claims the Renewable Fuel Standard is an economic saving grace. The Senator says that farmer income is projected to fall this year to the lowest level recorded since 2006, but he ignores the fact that the RFS — which has also been operating for the past 12 years — is a contributor to this decline.
Starting in 2005, the artificial demand created by the RFS biofuel mandate caused corn and soybean prices to temporarily soar. In response to those temporary high prices, and to meet federal government ethanol targets, farmers converted about 16 million acres of wheat, sorghum and other crops to corn and soybean production. Functioning as a corn production mandate, the RFS has radically transformed the agricultural landscape in America — particularly in the Midwest.
The resulting and systemic overproduction is a key reason why our country now suffers from a corn glut. And as basic economics teach, an oversupply typically results in a reduction in prices.
Actual market demand for corn and soy-based biofuels has never matched up to the ambitious mandate levels set by the federal government back in 2007. Still, crop production is linked to mandate volume, and high production levels are continuing to depress commodity prices. Add cheap corn to increasing costs for other operational factors, and it makes sense that farm incomes are taking a hit.
Mandate proponents like Santorum argue that the RFS is a lifeline to farmers and a solution to their declining incomes. They claim that even higher biofuel mandates and government-funded infrastructure to enable broader sale of E15 and flex fuels will give the oversupply of feedstock crops somewhere to go, solving the glut and helping recover incomes. But this fails to acknowledge that the RFS played a role in creating the current problem in the first place.
I agree that the USDA’s February 2018 Farm Income Forecast is concerning, but the solution is not to expand government’s biofuel production mandate, which was set when Congress believed very different things about fuel consumption trends and vehicle fuel economy. The solution should be to better connect crop production to actual consumer and market demand. And for farmers and biofuel producers who question whether a market- and not mandate-driven system can work in their best interest, the word to keep in mind is “octane.” There is strong demand for ethanol as an octane booster in fuel — in fact, ethanol is the most commonly used octane booster.
If Congress and the administration have voters’ best interests in mind — from the heartland to the Rust Belt — they will commit to the hard work of RFS reform now. The program is scheduled to change drastically in 2022 anyway, and a thoughtful reworking can correct the problems of price volatility and overproduction that are exacerbating farm income challenges. The benefits of such changes will extend throughout the country.
