By Todd Neeley
DTN Staff Reporter
OMAHA (DTN) -- Iowa has a lot to lose with the proposed cuts to the Renewable Fuel Standard, Iowa Gov. Terry Branstad told reporters Wednesday as all sides in the debate prepare for a hearing hosted by the Environmental Protection Agency.
Branstad is expected to be among those people testifying to the EPA on its proposal. Iowa leads the nation in corn, ethanol and biodiesel production. The RFS has brought economic prosperity to agriculture, Branstad said.
"I was governor during the farm crisis in the '80s," he said. "I know what can happen when you have agriculture depression."
EPA's proposed 3 billion-gallon cut to the overall RFS, including to corn-based ethanol, "could cost 45,000 jobs nationally," Branstad said, though it is not clear how he came to use that figure.
"When land values start dropping, equipment needs are less and this will lead to company layoffs," he said.
The oil companies are resisting, Branstad said, because they "don't want something they can't control."
"The decision EPA makes will have an effect on economic viability in Midwestern states," he said. "I would remind the president that he launched his campaign in Iowa" and won in the state based on his support for ethanol.
"I think the president has made a terrible mistake in caving to big oil on this. We believe this would be devastating in a state that is making a difference. I don't want to go back to falling land prices and equipment companies going out of business. The RFS was to restore stability and predictability in our state. It has done that."
Matt Erickson, American Farm Bureau Federation economist, said the RFS has been a boon for U.S. agriculture and a "success story for the rural economy."
Since the passage of the RFS in 2005, agriculture exports have increased by 57% and crop output by 44%, Erickson said. With what is expected to be a record corn crop this year of around 14 billion bushels, he said cutting the corn-based ethanol portion of the RFS would lead to a reduction in demand for corn of about 500 million bushels.
To start 2014, Erickson said, production costs likely will lag behind prices. For the first time since 2005, he said, corn's break-even price may be around $4.
EPA HOLDING RFS HEARING THURSDAY
Thursday's hearing will draw a crowd of farmers. The National Corn Growers Association stated at least 30 members from around the country plan to attend and testify.
"It's great to see so many people willing to leave their farms at this time of year for an important opportunity to give the EPA a piece of their mind," said NCGA First Vice President Chip Bowling, a Maryland grower. "This has already had a negative effect on our farms, and if the EPA gets its way, it could cause serious harm to the rural economy -- not to mention cutting the environmental benefits of domestic, renewable ethanol."
Some two dozen representatives of the U.S. biodiesel industry also are slated to testify at the EPA hearing, according to a news release from the National Biodiesel Board.
Biodiesel is the first EPA-designated advanced biofuel in the RFS to reach commercial-scale production nationwide. The EPA proposal, however, would reduce the biodiesel mandate to 1.28 billion gallons -- down from the industry's production rate of about 2 billion gallons since July.
Tim Keaveney, vice president for Erie, Pa.-based biodiesel producer HERO BX, said in a statement that he will tell EPA that his company's record production is helping to revitalize the local economy.
"We have invested $120 million into our biodiesel refinery with a vision of supporting a green industry to foster innovation, and to create meaningful jobs in Erie, Pa., one of America's oldest manufacturing towns," Keaveney said. "The investment was made in part due to the government's stance on establishing and supporting renewable fuels. To pull the rug out from under us now would foil current investment and likely stagnate future development in clean energy."
A number of food, oil, poultry and anti-hunger groups said Wednesday they're ready to make their case on the EPA proposal -- that the RFS should be permanently changed if not outright repealed.
Charles Drevna, president of the American Fuels and Petrochemical Manufacturers, said he believes EPA has started to realize the RFS' "potential adverse effect" on consumers. However, he said the EPA proposal is only a temporary fix.
"We're seeing existing vehicles and infrastructure simply cannot handle ethanol above E10," Drevna said, and that EPA should set the mandate lower than its 2014 proposal.
"We're not asking EPA for cuts in ethanol production," he said. "We're asking them to hold off increasing the mandate. We're saying look, you're not going to lose market share in 2014, so let's not impact the consumer. This law is bad policy. If not repealed, it should be severely amended."
Scott Vinson, vice president and chief executive officer of the National Council of Chain Restaurants, said the RFS has led to an increase in production costs for restaurants.
"Restaurants are family run by and large," he said. "Costs to operate have increased dramatically. It's not just us who are saying this. Studies show the RFS is implicated in the rise of commodity prices."
Vinson said his group's own research concluded that the conventional portion of the RFS -- the corn-based ethanol mandate -- will raise the food costs by $3.2 billion a year for chain restaurants in the coming years. That's an increase of 10%, or $18,000 a year. "And it is a very thin profit-margin industry," he said.
Joel Brandenberger, president and chief executive officer of the National Turkey Federation, said lower corn prices will eventually benefit turkey producers.
He said the U.S. turkey industry is beginning to recover from "a slump." The RFS has led to an additional $1 billion in feed costs to turkey producers since its inception, Brandenberger said.
"We're not able to plan for the future," he said. "It will be some time until the less-expensive feed will work through the system. Congress needs to make a permanent fix."
Marlo Lewis, senior fellow at Competitive Enterprise Institute, said the RFS is contrary to a free, competitive economy.
"The RFS is an unjust policy," he said. "In a free society, the law treats people as equals. In a free society, no one is legally bound to buy from another. The RFS literally compels one industry to sell other companies' products. Imagine the howls from RFS supporters if farmers were compelled to sell" a certain balance of commodities.
"RFS supporters would have us believe the RFS is as American as apple pie. What we're talking about here is a Soviet-style production quota."
Todd Neeley can be reached at firstname.lastname@example.org.
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