U.S. Ag Chief Calls for Limits to Ethanol Subsidies

U.S. Agriculture Secretary Ed Schafer is calling for cuts in government ethanol subsidies.

Questioned by a panel at a meeting of the Society of American Business Editors and Writers in Kansas City, Schafer says he thinks the ethanol industry has made a mistake by incorporating the government subsidies in its operational financial model.

“I feel strongly we have to watch a business industry develop to that mature profitable area and then back off the subsidies, which are all protectionist issues, and let the marketplace run the product,” he says in a webcast of his appearance.

“I think the ethanol industry has incorporated the taxpayer subsidies in their operational financial model,” he adds. “I think that’s a mistake. But it’s there, and because of that we are going to have to see a gradual lessening of the subsidies.”

Shafer says it is important for the subsidies to remain in place until the ethanol industry matures and profits can be made.

“When they are built into the financial model, we can’t (eliminate them) overnight,” he says. “(But) we don’t want to see the industry get dependent on subsidies.”

The U.S. Department of Agriculture and the Environmental Protection Agency within the next few weeks will release a biofuels action plan that will lay out what elements of the biofuels industry the government sees as sustainable and outline the government’s ability to support the industry, Schafer says.

He also sets out to correct what he sees as a misconception about the government’s policy on renewable fuels.

“The renewable-fuels standard, while often categorized as a mandate, is really a goal,” he says. “There’s no mandate. There is no requirement for 36 billion gallons (136 billion L) by 2020 of renewable fuels.”

Shafer says he’s not a mandate person.

“I don’t believe our government should tell manufacturers what cars they ought to manufacture,” he says. “I don’t believe the government should tell individuals what kind of car they ought to drive or what kind of fuel they should put in a car.”

The secretary calls the tariff on ethanol imports an interesting dynamic, saying the Bush administration wanted it to lapse in a couple of years from now, but Congress decided it would last for the life of the Farm Bill, which is at least five years.

“In general terms, we need to reduce tariff barriers, duties, any kind of government restrictions that interfere with the free marketplace of feed stocks for the generation of our biofuels,” he says.