Consumers win by curbing price volatility
WASHINGTON -- With gas prices ticking higher and the summer months approaching, no relief is in sight. Gas prices affect not only your cost at the pump, but also the cost to transport goods you use in everyday life, such as food and clothing. Wit...
WASHINGTON -- With gas prices ticking higher and the summer months approaching, no relief is in sight. Gas prices affect not only your cost at the pump, but also the cost to transport goods you use in everyday life, such as food and clothing. With an economy that is slowly recovering, spikes in the price of fuel could spell disaster. Congress needs to act to ensure our economic recovery is not derailed.
The U.S. Senate missed an opportunity earlier this year to do just that when it failed to pass an amendment to the Surface Transportation Act by Sen. Debbie Stabenow, D-Mich., which would have extended several key provisions for renewable energy, such as the cellulosic biofuels producer tax credit, the accelerated depreciation allowance for cellulosic biofuel plant property and the biodiesel tax credit.
If we are going to get relief from high gas prices and keep our economic recovery on track, renewable energy is the key. A study by the University of Iowa and University of Wisconsin found that in 2010, ethanol lowered the price of gas by 89 cents per gallon. That is the power of choice, and we must keep funding renewable energy programs to ensure that American consumers continue to have such a choice.
Another way to help the renewable energy industry is to curb damaging price volatility that impacts its inputs. National Farmers Union recently released a study by the University of Tennessee that found that if a Market-Driven Inventory System is put in place during the next 10 years, such a system could moderate highs and lows in the grain markets. This would benefit biofuel producers by giving them a more realistic idea of input prices, allowing them to set more accurate production targets. This, in turn, would lead to increased biofuel production and more consumer choices, further driving down the price of gas.
This is just one of the many benefits of MDIS. During these times of budget deficits, Congress is looking over the federal budget for potential savings. The MDIS study found that, in the next decade, the cost to extend current policies would be $65 billion, while the cost of MDIS would be $26 billion. That is a savings of more than 60 percent. If Congress were to implement MDIS in conjunction with other farm programs, MDIS, by moderating high and low prices, would make other programs cost less by eliminating the need for payments due to low prices.
In times of significantly reduced government payments, net farm income would actually increase slightly during the next 10 years. This is because more farmer receipts would be derived from the market rather than federal payments. Also, the value of grain exports would increase approximately $15 billion through MDIS policies compared to current policies.
The central feature of MDIS is a voluntary, farmer-owned and market-driven inventory system based on recourse loan rates set at a level less than total cost of production but more than variable costs. Once crops are placed under loan, farmers would receive storage payments and be required to keep the crops off the market until a release level set at 160 percent of the loan rate is reached. At that time, storage payments would stop and the loans would be called on a first in, first out basis. Inventory stocks activity would only be activated when crop prices become so low or so high that normally profitable agriculture firms are not provided with reasonable production and investment signals.
Taxpayers would benefit from MDIS by saving $39 billion in federal payments to farmers. Farmers would benefit by getting a more stable price for the commodities they produce. Commodity users, particularly livestock producers and biofuel producers, benefit from not having to deal with the wild price swings that can put producers out of business, while the food insecure community would benefit from the presence of commodity stocks to ensure food is available.
A divided Congress has already squandered multiple opportunities, such as the Stabenow amendment, to support the renewable energy industry and provide American consumers with necessary relief at the pump. MDIS is another chance to help the industry by providing more cost certainty, allowing them to better plan for the future and increase production. MDIS also benefits farmers, livestock producers and the food insecure, all while reducing our budget deficit. This is a farm program that should receive bipartisan support in the next farm bill and is an opportunity for Congress to show that it is able to come together for the good of the country and produce solutions that work for everyone.
Editor's Note: Johnson is the president of the National Farmers Union. Before his post at NFU, Johnson was the North Dakota Agriculture Commissioner.