In the midst of one of the most severe droughts on record, Washington’s ethanol mandate is making the corn shortage even worse. Markets have responded quickly and flexibly to the drought where they can, but some corn buyers are sidelined by the rigid government ethanol mandate.
Corn prices are skyrocketing, and livestock farmers are suffering from the high price of corn-based feed. Nonetheless, the government mandates that 13.2 billion gallons of corn ethanol must be produced in 2012. The mandate has not been changed at all in response to changing real-world conditions, despite repeated pleas from American beef and pork farmers.
Under a free market system, the pain of the drought would be spread around—corn growers, livestock farmers, fuel producers would earn a little less than usual, and the consumers of corn, meat, and gasoline would pay a little more. A free market allows participants to change the quantities they supply or demand in response to price fluctuations.
A government mandate, by contrast, fixes quantities and forces prices to rise rapidly when nature reduces the supply. In this case, livestock farmers and corn consumers—including the poor in America and abroad—bear the brunt of the inflexible ethanol mandate. Even in a good year, the ethanol mandate makes food more expensive for American consumers. The Heritage Foundation’s Nick Loris has written further on the damage done by government mandates and subsidies in the corn ethanol industry.
No government policy can restore the corn lost to the 2012 drought, but a compassionate government would permanently repeal the ethanol mandate and allow Americans to meet one another’s needs at mutually agreed prices in a free and flexible marketplace.