Inc.This has been a cruel season for America's agricultural economy.
It was partly unavoidable, as our nation's farmers are being devastated by this summer's brutal and worsening drought.
The farm economy has withered along with the crops, and the American consumer, once again, will pay for it with higher food prices.
One of the hardest-hit commodities, corn, plays a critical role in our food chain. This year's crop yield could be the worst in 15 years, and corn prices have already hit record high levels.
But aggravating the problem and adding to the crisis is the U.S. government's Renewable Fuel Standard (RFS), which requires that a certain volume of ethanol (15.2 billion gallons in 2012, mainly derived from corn) be blended into gasoline.
This is an arbitrary figure, set irrespective of market supplies, demands or price. It applies to corn that's desperately needed for livestock feed and food for consumers.
The RFS has diverted so much corn as a questionable substitute for gasoline that in the face of this drought-depleted harvest, major food-producing companies such as Smithfield are being forced to seek alternative markets for grain to meet the demands of their livestock and at more affordable prices.
Ironically, if the ethanol mandate did not exist, even this year's drought-depleted corn crop would have been more than enough to meet the requirements for livestock feed and food production at decent prices.
To give you some idea of the magnitude of the problem, look at Smithfield. We're the world's largest pork producer. We purchase roughly 128 million bushels of corn and corn equivalents a year from U.S. farmers to feed our 16 million pigs on farms across 12 states.
This makes us one o f the largest consumers of corn in the country. In addition, we contract with about 2,135 U.S. hog producers.
This year, the double whammy of a drought that's ravaging crops and ethanol demand has pushed corn prices to what are now record-high levels of over $8 per bushel, a quadrupling of prices in less than a decade.
This has compelled food producers like Smithfield to find ways to control skyrocketing feed costs.
For the first time in memory, corn is cheaper when it's delivered to the U.S. from abroad than if it's purchased from domestic suppliers. Smithfield was forced to take the unfortunate but absolutely necessary step of buying corn from Brazil—spending money that under normal circumstances would have gone to U.S. farmers.
This is what happens when the corn market, which already has to count on the whims of Mother Nature and is governed by the laws of supply and demand, is victimized by the whims of Washington and the unintended consequences of the diversion of food to fuel.
Ethanol now consumes more corn than animal agriculture does. According to a study recently released by the Center for Global Food Issues, ethanol production currently uses more than 40% of the U.S. annual corn supply, representing a 300% increase from 2005 to 2011.
The resulting impact on corn prices is stunning: Per-bushel prices jumped to a record high last week of $8.24 from $2 in 2005, the year the ethanol mandate was put in place.
The U.S. Department of Agriculture also reported that a record-low 26% of the corn crop is rated to be in "good" or "excellent" condition—down 40% from a year ago.
And 45% of the corn crop is in "poor" or "very poor" condition. The USDA has declared nearly 1,400 counties in 31 states disaster areas as a result of the drought.
The current corn-price crisis demands that lawmakers and regulators immediately consider how to amend the RFS to help ease the pressure it is placing on the supply of corn for food, and to help reduce the cost to consumers.
In the short term, the Environmental Protection Agency should grant a nationwide waiver to the RFS. That will have an immediate positive impact on the corn market by removing the demand created by the mandate.
Furthermore, there is a legislative proposal backed by a bipartisan group of members of the House of Representatives that would tie the RFS percentage to free-market supply and demand.
Congress should pass that immediately. This "stocks-to-use" ratio—a well-established USDA formula for determining corn availability—would make the market act as the driving force behind the percentage of ethanol blended into gasoline instead of an arbitrary figure set by the federal government.
The nation's corn crop is in a state of crisis. We can't control drought. But we can and must address the impact of politics on corn supplies and prices by taking steps to ease the pressure and help prevent food inflation: We can waive the ethanol mandate now, and then work on a longer-term plan.
Mr. Pope is the president and CEO of Smithfield Foods, Inc.
A version of this article appeared July 27, 2012, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: The Ethanol Mandate Is Worse Than The Drought.
Source: Argentine Beef Packers S.A.
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