Ethanol Booms, Farmers Bust

From the news these days you'd think farmers have never had a better friend than ethanol. Headlines holler that corn prices are soaring and that at this moment farmers are planting more acres of corn than they have in the last 50 years. Reporters writing about the ethanol boom are throwing around words like gold rush, jackpot, and nirvana. But if you actually are a farmer, ethanol and the high corn prices it brings is looking less and less like a blessing -- and more like a curse.

In concept, corn ethanol could benefit American farmers. Anytime we as a country look to them to supply our daily needs, it's an opportunity for rural communities to win. The problem is that the boom is taking place in the same old agricultural economy, which works to the benefit of those on top: landlords, processors, and companies selling inputs like seeds and fertilizers. It's agribusiness as usual, and like always, farmers will finish last.

"Initially we all were excited by the high prices," said Troy Roush, a sixth-generation farmer who grows 2,600 acres of corn in central Indiana. "But the truth is that the farmers won't keep any of it. There's an old saying that expenses will always rise to meet revenue. It all gets built in."

And that's exactly what has happened: As the price of corn has gone up, so has the cost of growing it. In just two months, the price Roush paid for fertilizer doubled. And speculation has driven land prices through the roof. "It's insane," Roush said. "In the last four months our land values have increased 40 percent. We're all sitting around wondering if it's real."

While most farmers own some land, the vast majority rent part or all of their acreage. Rents already swelled in some areas for this season, and farmers are bracing themselves for an even greater increase in 2008. A study by the Illinois Society of Professional Farm Managers and Rural Appraisers forecasted that if corn prices stay high, rent for prime farmland in the state next year will rise by 19 percent -- to 218 dollars an acre. For young farmers, something rural America desperately needs, such inflation can make getting into the business impossible.

It is true that ethanol can offer farmers more control in the market through cooperative ownership of production plants. But thanks to the recent boom, corporate investors from around the world are now building plants that dwarf the farmer co-ops of the 1990s. And in the rush to meet the government's renewable fuel mandate, most incentives no longer favor farmer-owned plants.

In this new marketplace many farmer co-ops have cashed out, selling themselves partially or entirely to outside investors. According to the American Coalition for Ethanol, of the 75 plants slated for construction over the next two years only 25 percent are farmer-owned, and even those are often run in part by non-farmers from Des Moines and Chicago.

Without ownership of ethanol plants, farmers return to being mere workers in service of a volatile market. While the price of corn may be at a glorious four dollars a bushel now, when it evaporates farmers will likely be left to pay for costs that reflect a boom but with profits that reflect a bust. Considering that much of the biofuels industry is already calling corn an archaic fuel source, looking forward instead to cellulosic ethanol, this crash is bound to happen within the next few years. To Roush and his colleagues it's beginning to feel ominously like the lead-up to the farm crisis of the 1980s, when high times led to unsustainable debt. They fear that the near future holds widespread foreclosure, not rural salvation.

To make matters worse, the boom is happening in a Farm Bill year. Congress is under tremendous pressure to peel back agricultural subsidies as they write the bill, and today's high corn prices and the promise of a bright, ethanol-powered future for farmers might give them the excuse to do so. Of course maintaining the subsidy system indefinitely isn't a solution, but the fact is that thousands of family farmers rely on those payments; to remove them without adequate replacement in such uncertain times could alone cause another farm crisis.

Despite all the problems it's causing, four-dollar corn itself is not the problem. In a sense it's actually a good thing, for it means farmers are getting closer to a fair price for their product. But a high price today doesn't ultimately benefit farmers if they remain in a system that allows the price to freefall tomorrow. What farmers need in order to rebuild their communities and secure their farm incomes is not an ethanol boom -- or any kind of boom for that matter. They need a system that offers a fair return for their product all the time, not just during a fuel crisis.

The United States has had such a system, with the New Deal price supports that lasted into the early 1970s. In its proposal for how to shape the 2007 Farm Bill, the National Family Farm Coalition has proposed a similar system of price supports (along with complementary programs).

If we as a nation care about family farmers as much as we claim to, we ought to take the NFFC's advice: scrap the subsidy system, which only perpetuates the vicious cycle of farm-level booms and busts, and replace it with a predictable system that growers can rely on. If we do that, perhaps the ethanol boom will turn out to be a godsend for family farmers: not because it gave them a quick windfall of profits, but because it awakened the rest of us to how vulnerable the current system has made them -- and spurred us to do something about it.