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Renewable Fuels Standard Question Isn't Dead

New paper estimates as much as $30 billion in poultry, meat value lost to ethanol production

Published on: Nov 7, 2012

A new paper authored by Thomas Elam of FarmEcon, LLC., the same author that spurred the livestock industry's original push for a Renewable Fuels Standard waiver, estimates as much as $30 billion in lost meat production for 2013 due to increased ethanol production.

The study, "Ethanol Production: Economic Impact on Meat and Poultry Consumption, Value and Jobs," says that a large gap emerged in 2006 between the supply and demand of meat and poultry versus actual consumption, a change that Elam attributes to "rapidly increasing demand for corn for ethanol production, partially driven by the Renewable Fuels Standard."

New paper estimates as much as $30 billion in poultry, meat value lost to ethanol production
New paper estimates as much as $30 billion in poultry, meat value lost to ethanol production

Elam's initial report on the RFS, released this summer, stirred opposition to the government program, which requires that 15.2 billion gallons of renewable fuels be produced in 2012. Widespread drought caused uncertainty about the size of the nation's grain crops, fueling concern that supply would not be adequate to meet domestic and foreign demand for feedstuffs and renewable fuel fodder.

Elam's new study finds that ethanol production, spurred in part by the RFS, has increased faster than grain production and export volumes. He notes that feed availability and use have also been trending down since 2007, driving grain prices higher.

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Elam's report says lack of sufficient grain supply is causing meat loss.

"Since 2009, the increasing squeeze on corn supplies has resulted in much higher potential value losses for meat and poultry. If corn production had been sufficient to supply both ethanol and potential meat and poultry demand, up to $24.3 billion of 2012 meat and poultry value could have been created," the report says.

Every ton of corn forced into ethanol production by the RFS, Elam adds, reduced final product value, and thus GDP, by $1,384.

Elam's report argues that though market forces have played a role in the value of fuels relative to the value of food production, without the RFS there would be a slower, "more sustainable" growth rate for renewable fuel production.

"With the RFS continuing to increase in the face of limited corn production capacity further, and much larger, economic losses are certain. Given USDA forecasts for 2013 meat and poultry production, the meat and poultry production value loss for next year will balloon to about $30.6 billion. Corn is in such short supply that 2013 ethanol production and corn exports are also expected to decline, and with it economic value, further increasing the net loss to the economy," Elam writes.

Indirectly, job loss and slow growth of the ethanol industry have also been a burden to meat production. Elam says each million tons of corn plus DDG used to produce meat supports 4,169 direct processing jobs – versus 147.9 direct ethanol jobs.

"Direct employment in meat and poultry processing is over 29 times the number directly employed in ethanol processing," Elam argues. "Unintended consequences of the RFS are putting large numbers of current and potential food sector jobs at risk in exchange for minimal job gains in ethanol production and value."

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Additionally, the ethanol market is slow to grow, Elam says, and corn going into "excess ethanol production" will not be available to U.S. meat and poultry producers.

"Transformed into meat and poultry products, 6.3 million tons of corn could have produced end products worth about $11.5 billion. The value of the ethanol net exports was about $2.8 billion. The difference, about $8.7 billion, is potential domestic meat and poultry product end value that was not created due to the export of corn in the form of ethanol," Elam notes.

The near-record corn acreage in 2011-12 wasn't enough to satisfy potential use for meat production, export demands and RFS requirements, Elam concludes.

"The RFS, by favoring access to corn of relatively low value-added ethanol production at the expense of meat and poultry, is reducing economic welfare, and economy-wide job creation potential," he says.

Click here to read the complete report.

Read more about the RFS debate:

EPA Issues Request for Comment on RFS

USDA Estimates Shake Up RFS Debate

Renewable Fuels Standard, Biofuels Continue to Take Hits

Senators Support RFS Waiver

Lawmakers Join Livestock Groups In RFS Debate

RFS Drought Debate Continues