Are Corn Ethanol Farm Subsidies Too Complex to Understand?

Several bits of news trickled out this week that, when put together, indicate great confusion even among experts about whether or not corn ethanol government subsidies are helping or hurting.


To start with, researchers at Iowa State University have found that, even though $1.3 billion was given to the corn ethanol farming industry in the form of subsidies in 2007, the government saved $3.45 billion on what are called loan deficiency payments as a direct result of these ethanol subsidies.

Loan deficiency payments were established in 1985 as a way to ensure farmers’ incomes remained steady even when prices for commodities such as corn were abnormally low. Since 1998 the loan deficiency payment program has cost taxpayers more than $29 billion.

After adding all the pluses and minuses together (including the two factors mentioned above), the Iowa State researchers concluded that ethanol subsidies have had the effect of lowering overall farm subsidies by $2.65 billion in 2007. That’s a chunky bit of savings for the US taxpayer.

On the heels of these research results, the UK Financial Times has released a multi-part series detailing how the US corn ethanol boom and subsequent bust is fully attributable to government subsidies that inflated demand for a product against natural market pressures.

According the the Financial Times, billions of taxpayer dollars were used to subsidize the corn ethanol industry. Early investors, including people like Bill Gates, have lost billions more because the self-same subsidies that were supposed to spawn an industry have ended up killing it.

So which is it? Are US taxpayers losing money to ethanol investment, or are we saving money on other fronts that make up for the losses and perhaps even provide a surplus? Has the system of corn ethanol subsidies gotten too large and bureaucratic for even the experts to understand at this point?

In my mind the issue is much bigger than simply who is and isn’t losing money. There are a myriad of other nuances involved in the valuation of biofuels including worry over food prices, energy independence, and environmentalism, to name but a few.

Like I’ve said before, and as the Financial Times concurs, the biofuel genie is out of the bottle and there’s probably no putting it back at this point. So now the question becomes: if it’s broken can we fix it?

Image Credit: dogfrog’s Flickr photostream. Used under a Creative Commons license

Sources: The Farm Gate (via Biofuels Digest), and The Financial Times (via Biofuels Digest)

Nick Chambers

Not your traditional car guy.