How the (Finally Ended) Corn Ethanol Subsidy Made Us Fatter

America's food chain has lately produced a bumper crop of headline-ready catastrophes. From arsenic in apple juice to antibiotics in beef to E. coli-tainted lettuce, a trip to the friendly neighborhood grocery store can sometimes feel like a round of Russian roulette.

But the biggest threat -- the one that food experts agree is most responsible for America's health, economic, and dietary problems -- has just been neutralized: At the end of 2011, Congress allowed the much-vilified corn ethanol subsidy to expire.

Ethanol, a gasoline replacement and additive that could help reduce America's dependence upon foreign oil, has long been America's top recipient of alternative fuel funding. And since 1980, corn ethanol -- essentially, gas made from corn -- has been the biggest beneficiary of the biofuel craze. Over the past 30 years, the federal government has given an estimated $45 billion to the corn industry to help support ethanol production. In 2011 alone, those subsidies totaled about $6 billion, or about 45

cents for every gallon of ethanol.

Brutalizing America's Waistlines ...

But the investment in generating more home-grown fuel has also generated a host of painful side effects. First, by driving down the cost of corn, the subsidy helped spur the wider use of America's most notorious sweetener: high fructose corn syrup.

Starting in the mid-1980s, as subsidy money trickled through the agricultural economy, farmers and food production companies discovered that, even when sale prices for corn were low, the government's largess meant it was still worthwhile to grow it -- lots of it. This meant that more was grown than could be consumed by people or livestock, but only so much of the excess could be made into fuel. Turns out, ethanol is hard on engines, so the standard blend of gas that goes into your tank is only 10% ethanol -- the rest is good old fossil fuel.

So what were corn producers supposed to do with the rest of that huge surplus?

Enter HFCS. Beginning in the late 1970s, the U.S. instituted tariffs that drove up the price of sugar. By coincidence, a few years later, the corn subsidy started driving down the price of corn. The combination suddenly made HFCS a great deal for food producers. Beginning in the mid-1980s, the sweetener started working its way into foods, and within a few years, it was showing up in thousands of products -- contributing thousands of empty calories a week to the average American diet.

Over the past few years, attacks on HFCS by nutritionists and food wonks like Michael Pollan have made consumers more wary of the additive. However, as HFCS usage has dropped, ethanol use has increased. In 2007, Congress mandated that the U.S. must consume 15 billion gallons of alternative fuels a year -- including ethanol -- by 2015; by 2022, annual usage must increase to 36 billion gallons. As ethanol production has ramped up, it has taken the price of HFCS with it, further reducing the sweetener's viability. The removal of the corn subsidy will likely make HFCS even more expensive -- and less attractive to food producers.

... And Mexico's Economy

At the same time that the corn subsidy was expanding America's waistlines, it was also devastating Mexico's rural economy. Because of the subsidy, U.S. farmers were able to sell corn for less money than it cost them to grow it. When the North American Free Trade Agreement was passed in 1994, it opened Mexico's borders to a tidal wave of cheap American corn. Since then, an estimated 2 million Mexican farm jobs have disappeared as unsubsidized Mexican corn has been priced out of existence. Today, farming in Mexico is a shadow of its former self, and millions of would-be agriculture workers have departed for sunnier pastures -- usually in the United States.

The saddest part of the subsidy saga is that corn isn't actually all that good as a source for fuel. For years, critics have argued that other crops, including sweet potatoes,wood chips, and even switch grass, can produce more fuel per acre than corn.

In fact, to make the U.S. corn ethanol industry profitable, lawmakers had to institute a tariff against Brazilian ethanol, which is made with sugar cane. The 54-cents-a-gallon tariff, coupled with the 45-cents-a-gallon corn subsidy, effectively cut 99 cents from the price of every gallon of ethanol produced, making American corn ethanol far more cost-effective than competitors from other countries -- or other crops.

The decisions to drop the corn subsidy and kill the tariff aren't the end for ethanol -- or for the endless debates that surround the alternative fuel. Given the questions about the effect of ethanol on engines, it remains to be seen if the federally mandated alternative fuel goals for the next decade will be reached, but one thing is certain: 10 years from now, far less of the ethanol going into America's gas tanks will be coming from corn.




Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.