High food prices may put farmers on a subsidy diet

Times Staff Writers

With high food prices prompting grocery-store apologies to customers and raising fears of starvation in impoverished countries, Congress suddenly faces renewed pressure to cut subsidies to the wealthiest farmers and incentives for ethanol production.

The American farmer, long an untouchable political icon, has even become something of a political embarrassment on Capitol Hill, with President Bush earlier this week demanding an end to crop subsidies for “multimillionaire farmers.”

Congress just last year required that more ethanol be added to the gasoline supply. The mandate is now blamed for inflating the price of corn and other staples.


“It’s hard to believe that in five months our country has gone from a strong commitment to pay any price for energy security to the kind of backlash we’ve seen against ethanol,” said Jon Doggett, a lobbyist for the National Corn Growers Assn.

In Congress, some lawmakers are calling for changes in the nation’s commitment to ethanol as the biofuel of choice to replace oil. “This is a classic case of the law of unintended consequences. Congress surely did not intend to raise food prices by incentivizing ethanol, but that’s precisely what’s happened,” said Rep. Jeff Flake (R-Ariz.), who introduced legislation this week that would end federal support for ethanol.

Farm-state lawmakers and agriculture lobbyists are stepping up their efforts to protect ethanol, as well as farm subsidies, which have drawn a veto threat from Bush.

At a Capitol Hill news conference on Thursday, Sen. Charles E. Grassley (R-Iowa), a corn and soybean farmer, brandished a big box of Corn Flakes and said a farmer made less than a dime from the box, which cost him $5. “When a farmer gets so little out of a box of Corn Flakes, don’t be blaming the farmer, and ethanol, for the high price of food,” he said.

In the latest indication that high food prices have changed priorities in Washington, Bush asked Congress on Thursday to approve a sharp increase in spending on international food aid. “In recent weeks, many have expressed concern about the significant increase in global food prices. And I share this concern,” the president said.

Soaring grocery bills have joined other pocketbook issues as major election-year concerns. Retail food prices are expected to increase by 4% to 5% this year, after a 4% rise last year, which was the largest annual increase since 1990.

At the Santa Ana Food Market in Orange County, owner Ken Lau said he has had to raise his prices. Small tortillas that once sold for 69 cents for three dozen are now 99 cents. “We have lots of customers with low-paying jobs and they are struggling now just to make it,” he said. High food prices have inspired critics, including the president, to renew their attacks on subsidies for farmers. The nearly $300-billion, five-year farm bill, delayed for months, has become an easy target for opponents who cite a new outrage: Many farmers are making record incomes while consumers are shocked by dramatic price increases.

“They’re talking about continuing $25 billion in these subsidies over the next five years at a time of record commodity prices and food prices,” said Rep. Ron Kind, a Democrat from Wisconsin.

The Agriculture Department forecasts that the average farm household will earn more than $89,000 in 2008, up 6.3% from 2007. That’s a third higher than the average U.S. household income, which is projected to be $67,000.

Despite that, farm-bill negotiators are fighting to keep $5.2 billion in direct payments, which go to farmers regardless of how much they earn or whether they are growing a crop.

The White House wants to cut off direct payments to farmers who earn $500,000 or more. Farm-state lawmakers want to reduce payments for farmers with incomes of $950,000 or more. In California, where many farms are enormous enterprises with multiple owners, those caps would apply individually to each owner.

“It’s the illusion of reform,” Kind said.

Farm-state lawmakers and lobbyists for the agriculture industry are reeling from the sudden shift in a political dynamic that has favored them for years. Rep. Steve King (R-Iowa) said that a year ago he would not have believed Congress would consider scaling back a decades-old ethanol subsidy. “Today, I am concerned,” he said.

One-fourth of the corn produced in the United States went to make fuel last year, an increase from less than 15% in 2005. But ethanol supporters note that the overall corn harvest is now larger. Corn sells at about $6 a bushel today, about three times the price of two years ago.

As more farmers switch to corn to take advantage of the high prices, fewer fields of grain and other food crops are planted, causing prices to rise for those as well.

Ethanol has long enjoyed a special place in American politics. Congress provided a tax break for the fuel in 1978. It is a key topic on the presidential campaign trail, which starts in Iowa -- first in the nation in ethanol production.

To win the votes needed to pass the 2005 energy bill, lawmakers added a requirement that ethanol be added to the nation’s gasoline supply. In last year’s energy bill, Congress ordered a fivefold increase by 2022 in the amount of ethanol and other biofuels that must be blended with gasoline. This year, ethanol is expected to make up about 6% of the gas supply.

But awareness of how ethanol has boosted corn prices and how those prices have rippled through the food marketplace has brought ethanol increased criticism.

Sen. John McCain of Arizona, the presumptive Republican presidential nominee, is a longtime critic of ethanol subsidies. Bush’s usual Republican allies are among those pushing for Congress to rethink its support for the biofuel.

A bill by Sen. Kay Bailey Hutchison (R-Texas) would freeze the mandate for corn-based ethanol at the current level of 9 billion gallons until 2016 or 2017. Texas Gov. Rick Perry, a Republican, has complained about the impact of corn costs on the state’s livestock industry.

The White House, however, contests the link between grocery-store sticker shock and the biofuel boom. “There’s a lot of other factors that are affecting our food prices,” spokesman Tony Fratto said Thursday, citing several, including high energy costs.

Farm-state lawmakers point to other factors: commodity speculators, droughts, a weak dollar and growing worldwide demand for grain.

“Americans are suffering from record costs at the gas pump and at the grocery store, and we need to find a way to put downward pressure on these prices,” said Sen. Byron L. Dorgan (D-N.D.).

“Rising demand for biofuels increases the need for agriculture products, but there are much bigger factors at work in the global marketplace when it comes to food prices.”

Lawmakers working on the farm bill are considering steps to address concerns about ethanol, including cutting a tax credit for producers who blend ethanol into gasoline from 51 to 45 cents on the gallon.


Times staff writer Molly Hennessy-Fiske in Santa Ana contributed to this report.