Who gets the corn?
Corn used to be used for food for animals and people. But in the last decade, a new use – corn as fuel, in the form of ethanol – has developed. And this new use has made a big change in the corn market, says N.C. State University economist Mike Walden.
“For the first time, this year the amount of corn that is used for ethanol may very well exceed the amount of corn that is used as feed for livestock. And a decade ago the amount of corn that was used for ethanol was only 20 percent of the amount of corn used for feed. So there has been a major change in how corn is used over the last decade.
“Two reasons for this: One, of course, the interest in alternative fuels as oil-based fuels like gas have gone up in price. And secondly, the federal government has gotten involved and is encouraging through subsidies — or has encouraged through subsidies — the development of ethanol production.
“Now there has been a side effect. And although this is somewhat controversial, there are many economists who say that this subsidization of ethanol production and the movement of corn from being used for feed for livestock to fuel use has cause the price of corn to go up. And farmers have to pay more for their feed. They’re going to pass it on to we consumers in terms of elevated meat prices.
“So this has created a whole discussion. In fact, as a result, Congress is really reconsidering for the first time very seriously the use of federal ethanol subsidies. So how corn is used has changed dramatically over the last decade, and it’s created along with it a lot of controversy.”Category: Economic Perspective