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Monday
Oct152007

Understanding the full costs of Corn Ethanol

Combining Sugar Protectionism with Corn subsidy created a product searching for a use. Corn syrup came out of nowhere to replace sucrose in thousands of products. Because it is metabolized differently than sucrose, its pervasive use is suspected by many to be a contributor to the diabetes epidemic.

Now this subsidized corn syrup is being priced out of the market amid huge distortions in productions of all crops, as farmers switch crops to take advantage of the subsidized corn bubble. Maybe it is time we just fixed the mess by ending sugar tariffs. Whatever benefits those domestic sugar producers were supposed to get from protectionism was lost when it priced corn syrup into the market in direct competition.

This would aid Caribbean and Central American foreign policy, reduce foreign aid requirements, and improve health (as producers switched away from corn syrup). It would also, of course, free up the crops dedicated to corn syrup for corn ethanol – without requiring subsidies. This might even change the economics of corn ethanol to make sense.

It still wouldn’t make Corn Ethanol useful as a Carbon / Fossil Fuel / Energy Independence policy. Corn production would still use a more fossil fuel than the energy produced. Ethanol would still generate more carbon dioxide per mile than the octane it replaces.

All of this leaves out the truly horrific effects of the spiral of corn and sugar subsidies.

Farmers across the country have switched crops to catch the corn subsidy wave. While the bad effects of Corn Ethanol policy on Mexican tortilla are prices are well known, the external costs of crop substitutions are less publicized. Among the crops that farmers have shifted from are Barley and Hops. There are now spot shortages in both of these markets

Barley and Hops. That’s right, the ingredients of Beer. Small brewers, especially microbreweries are expected to raise their prices across the board this winter to cover the increased costs for these basic supplies.

Bad economics and market interference are an American tradition. But they have gone too far when they mess with the price of beer.

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