Average annual net farm income, led by increased values for both grains and livestock has increased about $20 billion or nearly 30 percent from $71 billion to $92 billion. The gross farm value of livestock, dairy and poultry production has increased from an average of $123 billion per year pre-RFS to about $148 billion per year since 2008. The average margin for livestock and poultry values over purchased feed costs has increased by nearly $6 billion per year on average. When both the value of production and the margin over feed costs are rising it is hard to see how the RFS has decimated their industry.
Concerning consumer food costs, food has generally tracked closely with the increase in prices for all items in the Consumer Price Index. Producer values for broilers (chicken) have increased by about $0.067 per pound since the RFS was enacted. However the retail to farm price spread shows that retailers have increased their margin by more than $0.11 per pound over the same timeframe. Retailers such as chain restaurants and fast food establishments paid farmers for their increased costs and improved margins, and then increased prices to consumers by an even greater amount. A similar result can be demonstrated for the beef and pork markets. This reinforces the analysis by the World Bank, USDA and others that oil prices, not farm commodities, are driving consumer costs.
The poultry industry blames the RFS for everything. Apparently the impact of losing 60 percent of their export markets to their two most important global customers – Russia and China - during the 2010-2012 period had no effect on the economic health of the poultry industry. So then, why were their advocates so anxious to get these markets restored?
U.S. taxpayers provided nearly $5.4 billion in payments from 2003 - 2007 to corn farmers because low prices. These government subsidies clearly benefited livestock producers by ensuring a cheap source of feed for their animals. Since 2008, those subsidies have fallen to zero partly as a result of the market effect of the RFS.
Finally, the advocates of the livestock and poultry industry state they are not opposed to ethanol, they just don’t like mandates. However, they continue to press for programs that benefit their industry such as mandated export promotion programs that cost taxpayers hundreds of millions of dollars per year, mandated guarantees to assure livestock receives 60 percent of the national funding for the Environmental Quality Incentives Program at a cost of about $750 million per year, inspection services that cost around $1.1 billion per year which are mandated to be paid for by the taxpayer, mandated livestock disaster programs, and federal purchase programs, beyond the support for the school lunch and other nutrition programs, to remove surpluses from the market that have cost the taxpayer more than $550 million during the last four years.
The 2012 drought had far-ranging impacts. In fact, corn export and ethanol demand declined far more than the markets for livestock. Livestock producers also have alternative feed sources including Distillers Dried Grains, a co-product of ethanol production, and other grains such as wheat that provided an additional 200 million bushels to the feed supply during the past year.
Corn production appears likely to rebound from the 2012 drought. Prices have declined significantly in recent weeks and are projected to be about 30 percent less during the 2013/14 marketing year than the average of the last 12 months. As I write this, new crop futures prices for December delivery are trading under $4.80 per bushel, down over $2.00 per bushel from last year’s average price.
Seems to me, when you peel back all the rhetoric and look squarely at the facts – the poultry and livestock industry are doing pretty well.
Quite frankly, I, along with many grain farmers, are tired of their unfounded blame game against the RFS and the ethanol industry which has helped establish the most robust farm economy in my lifetime.
The facts presented by the poultry and livestock industry simply don’t add up. The only sensible conclusion is that they want to turn back a successful policy so that they can profit from cheap feed paid for in part by the American taxpayer. The arguments of the livestock industry are irresponsible and unfounded. They do not provide a sound rationale to support repeal or modification of the Renewable Fuel Standard.
It is time the poultry and livestock producers stop lying to the American people and the government with wild and inaccurate claims about renewable fuel production increasing food prices. A recent World Bank study outlines how crude oil prices are responsible for 50 percent of the increase in food prices since 2004. So, if Big Food wants to blame someone, they ought to point their finger at their buddies over at Big Oil.
Pestoriou is president of Frontier Family Farms, a fifth-generation grain farmer of corn and soybeans from Albert Lea, Minnesota.