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Why It's Time to Kill the Sugar Tariff


How corn became king, and why we're starving ourselves because of it.


The US Department of Agriculture says that more than one in seven American households -- about 49 million people -- struggled to get enough food last year, the highest rate since the USDA began tracking hunger in 1995.

And, according to a Congressional Budget Office report earlier this year, the increased use of ethanol is responsible for a rise in food prices of approximately 10% to 15%.


We're turning corn into fuel -- a highly inefficient one, at that -- instead of food.

The Mackinac Center for Public Policy points out that "mixing food and fuel markets for political reasons has done American consumers no discernable good, while producing measurable harm."

However, perhaps summing up the issue most succinctly is Mark J. Perry, professor of economics and finance at the University of Michigan-Flint:

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the Wall Street Journal, Reason Magazine, the Cato Institute, Investor's Business Daily, Rolling Stone Magazine, the Christian Science Monitor, The New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institutions, the Heritage Foundation, George Will, and Time magazine, you know that ethanol has to be one of the most misguided public policies in US history.

But Brazil seems to have made it work. Using just 1% of its arable land, Brazil produced 6.57 billion gallons of ethanol last year, roughly half the annual oil production of Iraq. Ethanol accounts for about 50% of Brazil's automotive fuel.

Brazilian aircraft maker Embraer (ERJ) and General Electric (GE) are working to develop ethanol suitable for powering commercial aircraft, with a test flight possible by early 2012.

Most importantly, Brazil relies on imported oil for only 10% of its energy needs today -- due in large part to its ethanol industry.

So what's Brazil doing right?

The answer is simple. Unlike the United States, Brazil makes its ethanol from sugar, which yields more than eight units of energy for each unit invested, whereas corn-based ethanol yields a paltry 1.5 units of energy for each unit used. Sugar-based ethanol is also cheap to produce, at $0.60 a gallon.

It seems so obvious. An alternative fuel that works already exists. What's stopping us from using it?

A decision made 36 years ago by a man named Rusty Butz, before ethanol was even a blip on anyone's radar.

In 1973, Earl "Rusty" Butz, President Nixon's USDA chief, did away with agricultural price supports introduced by the Roosevelt administration that were intended to prevent farmers from getting hurt financially by limiting supply when bumper crops would have otherwise flooded the market.

They were also meant to keep consumers from being squeezed by releasing warehoused grain when crop yields were low and prices would otherwise naturally spike. Butz ginned up political support for the administration by encouraging farmers to plant "fencerow to fencerow" while the government provided them with subsidies to cover the difference between market prices and production costs.

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