Corn Ethanol and Monopoly Money

Corn ethanol no longer sounds like the savior of the farming sector it was originally touted as being.

... As recently as last summer, plants that make ethanol from corn were sprouting across the Midwest. But now, with motorists driving less in the economic downturn, the industry is burdened with excess capacity, and plants are shutting down virtually every week.

In the meantime, plans are lagging for a new generation of factories that were supposed to produce ethanol from substances like wood chips and crop waste, overcoming the drawbacks of corn ethanol. That nascent branch of the industry concedes it has virtually no chance of meeting Congressional production mandates that kick in next year. ...

As the article mentions, now that gasoline has fallen far below last year's $145/barrel heights, corn ethanol blends are no longer attractive as a way to make fuel cheaper. Farmers are already feeling the pinch from low grain prices. But that doesn't mean we'll be seeing any relief at the grocery stores.

Crop prices are going to be lower across the board, and the USDA's good news for the consumer is that food prices will rise less than they have the last couple years:

... For instance, the per-bushel price of wheat is projected to fall from $6.80 in 2008 to $5.75 this year, and to range between $5.30 and $5.50 in 2010 to 2018.

... However, the cost of growing wheat and other crops has risen sharply, making it difficult for farmers to make a profit from wheat when it sells for $5 to $6 per bushel, he said.

...The price of food increased 4.4 percent in 2007 and 5.5 percent in 2008, the USDA said. In comparison, food prices are projected to rise between 2 and 3 percent in each of the next 10 years.

Grain companies like Monsanto, meatpackers like Cargill, along with other food producers and distributors, raked in record profits last year. Speculators are probably partly to blame, ethanol, oil prices, overseas demand, higher labor and transport costs all came in for part of last year's hikes, as well.

But for corn, as is the case with several other commodities, what's also going on is that one company has a monopoly lock on the seed supply. In fact, Monsanto owns 70 percent of the seed market, enough that they don't have to worry about competition and can raise prices arbitrarily. The same is true with many other commodities, such as pork and chicken, where global market dominance of the meat industry has led a few companies to make stellar profits in times when rising prices for consumers have been blamed solely on higher costs.

Now prices of inputs are falling. The brief corn ethanol boom, an event that was the only chance many farmers had in years to come close to meeting production costs, is over. But the producers see less money, we see higher costs at the markets still, and profits are continuing to go up.

It's a classic hallmark of a market where there's neither competition nor accountability. And you can certainly tell anyone who wants to wave a copy of Wealth of Nations around that private monopolies without effective competition are no different in function than the guilds that Adam Smith charged with ruining entrepreneurial tradesmen. He knew businesses acted out of greed and his hope was that competition would be enough to keep them in check, so that their base self-interest didn't destroy the societies they were embedded in. Unfortunately ...

Every other sector is collapsing, global commodity prices are tanking, and US consumers are turning to cheaper food. But we're not going to see relief in food prices.

While it's fair to point out that some demand for food is inelastic, you can see that it does not behave like a normal market. Costs can go down all they like and it doesn't matter.

The parasites who run the global food industry are squeezing at both ends, and the farmers are getting it in the neck every bit as much as the consumer. The ethanol kerfuffle is already going down as just another excuse for the big corporations to rip everyone off, tell us it was beyond their control, and walk off whistling with their hands in their pockets.

It isn't just the banks that got away with highway robbery last year.

(Photo credit: Zesmerelda on Flickr.)