You can sue someone for just about anything in the US to choke up an overweight legal system. Despite this environment, there are some interesting cases that pop up, and this week one has come to light that will be worth watching.
The food and fuel industries in Europe and the US have a tenuous relationship over the role that ethanol plays in the fuel market – a position that has been significantly helped by strong government mandates in those regions to support ethanol demand. The US livestock and poultry industries are especially vocal in their opposition to government support for ethanol, claiming it drives up the cost of feed, and food costs generally. Those sectors face fairly complex market dynamics and in the US have seen some major business failures, consolidations and restructurings due to the cost pressures. People haven’t been keen to pay more for food as they’ve tried to weather a tough recession, yet the pressures on food producers have heightened as they cope with volatility in commodity conditions. The growing demand for ethanol and in turn for feed stock is just one of those pressures.
The US environmental regulator is also a player in the ethanol game. Their wide powers and decisions have far-reaching effect on this issue. Farm and food industry bodies last week filed a lawsuit against the US Environmental Protection Agency (EPA) over its recent controversial decision to allow for greater use of ethanol in motor vehicle fuel. The EPA decided that in enforcing the Clean Air Act it would allow fuel companies to develop and sell petrol with up to 15% ethanol – an increase from the prevailing 10% which they had previously mandated. The EPA said that cars made in 2007 and later could run on E15 fuel. It is working on extending this back to cars built after the year 2000.
The food industry says the EPA had no right to overstep its authority. The bigger question it challenges is the effect that replacing a “zero” with a “five” in the fuel regulation will have on food costs and consumer prices. It is estimated in the US that up to 40% of the motor fleet could access 15% ethanol mix.
The damages that the food industry advocates – which include Grocery Manufacturers Association, Snack Food Association, and the National Meat Association - wish to prevent through their action are the effects that higher ethanol demand will have on food prices. They think that with this greater stimulus to ethanol demand, greater volumes of corn will be diverted to fuel production, pushing up prices for corn, other grains and oilseeds used in food and livestock production.
The ethanol industry bats this straight back and reckons the gains in corn yields will result in plenty of corn for food and fuel. Ethanol already consumes about 40% of the US corn crop. Creating a market for E15 fuel may add significantly to this demand – provide cars can cope with the mix, and the fuel refiners and retailers decide to implement the change. Fuel companies so far they haven’t welcomed the EPA’s actions – they are also part of the lawsuit against the EPA!
There probably haven’t been as many cars made and sold in the US since 2007 to create a major problem, but back dating the effect will certainly kick up the demand. It’s a development to keep an eye on for those in the feed market.
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