05/20/2008 10:28 AM

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Organic Food vs. Ethanol Page 2

A few years ago, Congress mandated domestic use of 7.5 billion gallons of ethanol in fuel and fuel blends. More recently, the government doubled the mandate for "corn ethanol" to 15 billion gallons by 2016. That would consume roughly 5 billion bushels of corn, 38% of current U.S. corn production, as fuel ethanol.

The addition of fuel demand to the traditional demand for food and fiber has already doubled the price of conventional corn, pushing it from $2.50 to over $5 a bushel. The corn price is poised to go even higher, with consequences to be felt throughout the food chains - conventional and organic.

Since other crops compete with corn for land, prices for almost all crops are doubling. Soybeans went from $5.50 to over $13 a bushel in the past year. In the first quarter of 2008, that put the price for conventional soybeans higher than last year's price for organic soybeans. Pushed by the ethanol tsunami, prices for organic grains and oilseeds now run between two and three times the price of conventional.

For both conventional and organic farmers, these markets offer fantastic, profit-making prices. This creates a crisis for the buyers, processors and consumers, both conventional and organic. U.S. energy policy impacts agriculture everywhere. Our crops compete in international markets. Our prices are international prices. Argentine farmers along the Parana River receive the same price as farmers along the Illinois River for either corn or soybeans. The U.S. corn fuel subsidy spreads throughout world agriculture and its markets, distorting resource allocation to the U.S. goal and timetable for renewable fuels.

Impact on Organic

How do these ethanol-induced prices work against organic agriculture? Why are more U.S. farmers not converting to organic production to get super premium prices for their crops? With conventional farmers now making more money than they ever thought possible, their decision calculus has switched even further away from organic conversion. Rather than thinking of optimizing income, many are thinking of optimizing convenience.

Organic farming is not convenient. It takes more management time and skill, more individual responsibility, more trips across the field, and more attention to marketing than conventional farming. It offers less flexibility and less convenient market access. Making money in conventional agriculture is now just too easy to motivate U.S. farmers to consider the transition to organic.

Organic agriculture is proudly unsubsidized. Unfortunately, it competes with subsidized agriculture for production acres. In a world with the General Agreement on Treaties and Tariffs (GATT) and international forums pushing for lower agricultural subsidies, the U.S. energy program offers a new way of indirectly subsidizing corn. U.S. ethanol policy does not subsidize corn production directly. Instead, it subsidizes companies blending ethanol into fuel mixes and automobile companies offering flexible fuel chips.

Of the $5 being paid in February 2008 for conventional corn, about $2 a bushel, or 40% of the market price, is subsidy. Without the corn ethanol program, the corn price would likely be closer to $3 a bushel. That would make it much easier to encourage farmers to convert to organic production.

Foreign producers increasingly are helping to satisfy U.S. demand for organic crops. China supports extensive organic production, and recently moved to limit the use of food and feed crops for fuel production. Investors and entrepreneurs have discovered Eastern Europe and former Soviet states as an investment target for organic production. Although Brazil and Argentina are responding to the same ethanol tsunami that is sweeping the U.S., they offer potentially significant organic production and instant certification for land not currently under conventional production.

Meanwhile, the U.S. supports millions of acres of land in its conservation reserve. That reserve could be opened. But much of the conservation reserve is not suitable for row crop production. Nor is it likely than many of the owners of such land would opt for organic production.

Soaring input costs for conventional farmers might encourage some to convert to organic agriculture with fewer and lower cost inputs. To raise corn, conventional Midwestern farmers typically add 180-200 pounds of nitrogen to each acre. The price of synthetic nitrogen has gone from less than $0.20 a pound just a few years ago to over $0.60 a pound this spring. Some economists think such input cost pressures will move more conventional farmers to convert to organic production. Others appear much less sanguine.

Meanwhile, some within the industry are troubled that various processors and retailers have joined the organic community for economic rather than ‘green' reasons. They see restricted supply of organic crops as an opportunity to return to fundamentals and get rid of profiteers. On the other hand, many consumers want more, not less, organic products to be available. That's the good side of the organic equation.

Supply remains a daunting problem, however, and one that won't go away with the current clamor for ethanol.

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Lynn Clarkson is President of Clarkson Grain Company, Inc., in Cerro Gordo, IL and serves on the Organic Trade Association's Board of Directors.

FROM the Organic Trade Assocation's "What's News in Organic", a SustainableBusiness.com Content Partner.

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