Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Welfare-Case Companies: ADM and Big Agriculture


More than 40% of the company's annual profits come from products that are either heavily subsidized or protected through trade tariffs.

Tax subsidies for the ethanol industry totaled $6 billion in 2009, according to a new report from the Congressional Budget Office. And last year, the CBO showed that the increased use of ethanol was responsible for a rise in food prices of approximately 10-15%.


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

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

In an editorial, the San Antonio Express-News wrote:
Congress has mandated that an increasing amount of ethanol be blended into the nation's fuel supply through 2022. That means there's a guaranteed, established, steadily growing market for ethanol. Why does the industry need a $6 billion tax break, one that principally benefits corporate giants like Archer Daniels Midland (ADM)?

It doesn't. In a time that begs for fiscal restraint, Congress should end ethanol subsidies that have long outlived their usefulness.
And, as Mark J. Perry, professor of economics and finance at the University of Michigan-Flint, put it:
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, using just 1% of its arable land, Brazil managed to produce 6.57 billion gallons of sugar ethanol, roughly half the annual oil production of Iraq. Ethanol accounts for about 50% of Brazil's automotive fuel. General Electric and Brazilian aircraft maker Embraer 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 over eight units of energy for each unit invested, whereas corn-based ethanol yields a paltry one and a half units of energy for each unit invested. Sugar-based ethanol is also cheap to produce, at only $0.60 a gallon. (Though, to be sure, as Nikolas Kozloff writes in a recent issue of Foreign Policy magazine, sugarcane cultivation is also ecologically devastating -- in recent years, two dozen companies have been fined for illegally clearing some 143,000 acres of Brazilian rainforest to plant sugarcane.)

Why the unceasing support for corn ethanol here in the States?

In 1973, Earl "Rusty" Butz, President Nixon's USDA chief, did away with the agricultural price supports introduced by the Roosevelt administration. These supports were intended to protect farmers' finances by limiting supply when bumper crops would have otherwise flooded the market and to avoid squeezing consumers by releasing the warehoused grain when crop yields were low and prices would 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.

Of course, growing "fencerow to fencerow" did exactly what one would expect: Production exceeded demand, and prices took a dive. This didn't sit too well with ADM, the nation's largest corn refiner.

Now, there's only so much corn one person can eat. ADM suddenly needed to figure out how to somehow stimulate sales of all that excess food.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos