Ethanol: US Senate votes to drop subsidies

Jon Condon, 26/06/2011

The US Senate this week voted in favour of adopting an amendment to repeal the country's US45c/gallon Ethanol Excise Tax Credit for ethanol blenders and a 54c/gal tariff on imported ethanol.

Texas Cattle Feeders Association chairman Bo Kizziar said the result was a significant victory for US cattle feeders, other livestock producers and the US  taxpayer.

"While TCFA supports development of renewable and alternative sources of energy, it’s time for the 30-year-old, corn-based ethanol industry that has received $30 billion in US Government subsidies to operate on a level playing field with other producers who rely on corn as their major input,” Mr Kizziar said.

“A free market based system is the best driver of competition and innovation in all industries."

The amendment was the first step in a political process to get the ethanol blenders credit and import tariff repealed. It was part of an Economic Development Bill, the fate of which in the US Senate remains unknown. Even if approved, it may not be considered by the US House of Representatives, however.

Texas Cattle Feeders and the US National Cattlemen’s Beef Association said they had worked hard to secure votes for the amendment, and would continue their efforts in both the House and the Senate to pass legislation that permanently removed the ethanol tax credit and import tariff.

According to prominent US beef industry analyst, Steve Kay, Cattle Buyers Weekly, a 'broad bipartisan majority' in the Senate had supported an end to federal subsidies for ethanol blenders and the import tariff.

"But the House of Representatives is expected to reject such a move, and USDA and the White House could also oppose it," he wrote this week. President Obama was likely to veto any bill to which the ethanol measure was attached, observers told CBW.

Ethanol subsidies had been entrenched in the US for 30 years and previously were regarded as untouchable because of the power of farm-state legislators, CBW reported.

"But the subsidies cost about $6 billion per year. This made them a legitimate target as Congress attempts to cut costs to reduce the federal deficit."

The vote was a huge turnaround, as Congress only last December voted to extend the US45c/gal blenders’ subsidy for another year. But livestock industry groups, food manufacturers, restaurateurs and environmentalists managed to persuade senators to vote against another extension, and to put an end to taxes on imports.

"The groups have long argued that the ethanol industry should stand on its own feet after having received billions of dollars in federal aid. They also complain that support for ethanol has raised livestock feed and food costs," Mr Kay said.

But even if subsidies ended tomorrow, the ethanol industry would still use up to 40pc of the annual US corn crop and corn prices would not decline, analysts told CBW. That’s because of the federal government’s mandate of a 15pc blending percentage.

Meanwhile, farm ministers from Europe's Group of 20 nations (G-20) declined to call on the US to end ethanol subsidies.

The ministers, who met last week in Brussels, merely said they recognised the need for further analysis on biofuels’ influence on food production. European Union officials prior to the meeting had said they would continue to lobby the US to eliminate its tax credit.

The G-20 group agreed to tackle high food prices in a deal that steered clear of divisive details on issues such as regulation, the Reuters agency reported. This paved the way for more global cooperation on sensitive agricultural issues.



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