As ethanol helps give corn farmers a banner year, Congress may continue direct subsidy payments

Corn farmers are having a banner year, thanks in large part to the ethanol boom, but will still get $1.6 billion in direct payments next month, Dan Morgan reports for The Washington Post. "Coming at a time when taxpayers are already subsidizing the ethanol industry to the tune of $3 billion a year, the double-barreled support system for those who grow corn and those who turn it into fuel has begun to draw fire in Congress," he writes. "So far, Congress has shown little inclination to adjust the subsidies to account for the new energy-driven rural economy." The House-passed Farm Bill would continue direct payments, while a Senate-passed energy bill would "double the federal requirement for the use of ethanol from corn."

"It's money for nothing," Bruce Babcock, an economics professor at Iowa State University, told Morgan. Congress started direct payments in 1996 "to temporarily buttress farm incomes while other traditional subsidies were eliminated," Morgan notes. "They were supposed to be phased out. Instead, the 2002 farm bill continued them." Democratic Sens. Dick Durbin of Illinois and Tom Harkin of Iowa, the two leading ethanol states, want to reduce or curtail the payments, and so does Republican Sen. Richard Lugar of Indiana, a farmer. The National Farmers Union agrees, but the American Farm Bureau Federation, the biggest farm lobby, favors no changes.

"Iowa farmland values are up 18 percent in the past 12 months, according to Federal Reserve Board surveys, making millionaires on paper out of any farmers owning 200 acres free and clear," Morgan writes. "But relying on energy policy instead of the traditional farm program worries many in rural Iowa who remember previous bubbles. Ethanol prices have been tumbling recently as supply catches up with demand. Some ethanol companies ... have put plans for new refineries on hold pending action by Congress to expand required use. But such action faces stiff opposition from the livestock industry, which contends that the added demand for corn could mean higher feed and food costs. Environmental groups say it could jeopardize water supplies and sensitive lands in exchange for only minimal savings in the use of fossil fuels, given the amounts of gasoline and chemical fertilizer needed to raise corn. Meanwhile, the prices of fertilizer, seed and land have been rising rapidly as landlords and corporations move to capture their share of higher grain prices." (Read more)