Commentary—

Pricier Corn Is Good For The Nation

By Jim Harkness

Listen closely, and you can hear a growing roar of worry about the high price of corn, increasing from $2.60 a bushel last year to near $4 a bushel now. It’s just one crop, right, so who cares?

Well, corn isn’t just any crop. Corn is the key ingredient in a number of foods and soft drinks. It feeds our hogs, beef, and poultry. It is driving the exploding ethanol market. And its rising price is a harbinger of major changes taking place in agriculture.

For decades, corn has been ridiculously cheap. So cheap, in fact, that the market price paid to farmers has routinely been well below the cost of production. Grain companies have gobbled up the bargain. High fructose corn syrup, with corn as its main ingredient, replaced sugar in the 1980s as the main sweetener in soft drinks and other products. Cheap corn for animal feed made mega-hog, -beef, and -poultry operations commercially viable. It helped to bring 99-cent burgers to our fast food chains. And multinational grain companies exported our cheap corn to gain footholds in other markets around the world, often driving farmers in poor countries out of business.

Corn wasn’t always so cheap. In 1980, it was the equivalent of $5.69 a bushel in today’s dollars. What happened?

Several decades ago, the government used a series of tools including a price floor and supply management to stabilize corn prices. But a series of farm bills since 1980 stripped away those tools, and set incentives to encourage farmers to overproduce corn. The result was massive oversupply, rock bottom prices, and the loss of many farmers. Taxpayers now pay farmers between $15 billion to $20 billion a year to make up for low market prices. And the grain companies utilizing cheap corn and other crops have made out like bandits.

But ethanol is changing this entrenched system and that has some worried. By dramatically boosting demand for corn as a feedstock for ethanol production, we have seen a jump in prices. Grain companies are paying farmers a fair rate. Soft drink companies are warning of higher prices. Beef companies are slowing down production because of higher feed costs. Corn for ethanol use is expected to eclipse corn for export this year. Environmentalists worry that a dramatic increase in corn acres, with expected increases in pesticide and fertilizer use, will degrade soil and water quality.

Those are some concerns, but who gains from a fair price for corn? Certainly farmers do. Corn’s increased value has raised prices across other major commodities too, including wheat and soybeans. Taxpayers also win. When market prices rise, subsidies paid by taxpayers fall. We’ve already seen a $7 billion drop in agriculture subsidies from 2005 to 2006, with more expected in 2007.

Public health stands to gain too. Consumer research shows that price plays a significant role in the food we purchase. If soft drinks and greasy burgers start to cost more, healthier foods, including grass-fed beef and fruits and vegetables, become more competitive.

The environment stands to gain from higher priced corn as well. Higher feed costs make industrial mega meat and poultry farms much less competitive. The environmental community has fought against these operations because of concerns about antibiotic use, animal welfare, manure spills and resulting water contamination.

Higher price is also a necessary step to shifting the biofuels industry beyond corn. Most believe corn is just the first wave of biofuels feedstock, and other environmentally friendly crops like switchgrass represent the next wave. The eventual shift to perennial crops that use fewer or no pesticides and fertilizers will represent a huge gain for the environment. Not to mention reductions in greenhouse gases as we shift away from fossil fuels. Higher corn prices accelerate that shift by making environmentally friendly crops more competitive.

Any time the status quo is rattled, people get nervous. In the case of corn, a small group of very big grain companies has reaped tremendous rewards over the last few decades. This new era of high-priced corn gives the rest of us a chance to benefit from a new kind of bounty.

(Jim Harkness is the president of the Institute for Agriculture and Trade Policy. The Institute for Agriculture and Trade Policy, headquartered in Minneapolis, is a policy research center committed to creating environmentally and economically sustainable rural communities and regions through sound agriculture and trade policy.)