Cautiously responsive

by Josh Sosland
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KANSAS CITY — A determination to avoid compounding a difficult market situation with poor policy decisions is central to Bush administration thinking in the current environment, said Thomas C. Dorr, U.S. Department of Agriculture undersecretary for rural development. At the same time, Mr. Dorr, speaking to editors of several Sosland Publishing Co. publications, said the U.S.D.A. was monitoring the current crop and market situation and would be prepared to take action, including further changes in the Conservation Reserve Program, if it could be helpful.

The June 3 interview at the Kansas City offices of S.P.C. with Food Business News and other publications was part of a Bush administration effort to counter increasingly vociferous criticism that its policies, particularly with regard to ethanol, were compounding difficulties created by crop shortfalls and rising world food demand. Mr. Dorr participated in a May 19 press conference/ panel with Secretary of Agriculture Ed Schafer seeking to counter those criticisms.

Mr. Dorr’s position at the U.S.D.A. makes him chairman of the Department’s Energy Council, responsible for advancing the president’s energy initiative and also placing him in the firing line of critics.

As was the case at the May press conference, Mr. Dorr defended the administration’s ethanol program at a number of levels, including the degree to which ethanol production has mitigated the rising cost of gasoline.

Ethanol amounts to only 4% of gasoline supply, but Mr. Dorr, noting "prices are around t he margins," cited studies that would suggest gasoline prices would be 25c to 50c per gallon higher without the expanded ethanol supply.

He went on to say surging crude oil prices would sustain ethanol production (and the corn demand associated with it) whether subsidies for ethanol production remained in place, particularly at older plants, so long as the facilities were able to cover variable costs. He added that the long-term objective for biofuels never had corn as the sole source for ethanol. He said the current market is setting the stage, helping "foster the build-out of generation two cellulosic ethanol."

He continued, "If the market didn’t know that we could produce and consume 9 million gallons of ethanol, there would be absolutely no inclination to proceed for those who thought they had technology to convert cellulose into ethanol."

Taking a step back, Mr. Dorr sought to place current market disruptions in a historical context, noting corn prices doubled following World War II and nearly quadrupled during the Russian Wheat Deal in 1972. In both cases, he said market conditions stabilized following periods of intense volatility.

He suggested that the Bush administration has been motivated by trying to avoid the missteps from those earlier episodes.

"We did dumb things in the 1970s," he said. "Between supply constriction, the embargo and a wage-price freeze, it all led to commodity prices going down the drain.

"I believe the story now is yes, there will be pain in this transition. What we have tended to overlook is that the thing that’s different this time is that demand for liquid fuels and power is linear and calories and b.t.u.’s are fungible. You can’t do away with that."

Asked about the administration’s attitude toward the Conservation Reserve Program and proposals to allow early out for growers with land that is not environmentally fragile, Mr. Dorr seemed to show greater flexibility than Secretary Schafer did in meetings with the baking industry two months earlier.

"It’s safest to say this administration, the secretary and policy people are looking at all avenues and angles on this," he said. "They made an announcement last week to open C.R.P. land to grazing rights after the nesting period of time. We can all conjecture on the impact that will have on the consumption of grain and what kind of price relief it will bring.

"In the short term, particularly, we will not run out of corn. What this means is that in a very inelastic supply situation and inelastic demand situation, you’ll see a significant price move one way or the other. That would force us to look at all the alternatives available to ameliorate the stresses."

Mr. Dorr noted that not all the arable land with cultivation potential is in the United States. He cited a former U.S.D.A. economist who believes that 25% of Black Sea acreage cultivated during the Soviet era remains out of production.

"There are significant quantities of land in Africa and elsewhere that can be brought back into production and should be with the higher prices, giving economic opportunity for these subsistence farmers," he said. "So it is not a case of not having enough resources. But it clearly is dependent on governments imposing good policy."

Expanding on government and industry policy, Mr. Dorr turned the discussion to biotechnology.

"Quite frankly we don’t know of any loss of life or health problems from genetically modified organisms," he said. "We certainly know there is loss of life and health problems from lack of food. It’s clearly time we step up to the plate using the technology we have, mitigating the trade issues we have and bringing a number of these opportunities on line. It isn’t just the U.S. and C.R.P. It’s globally."

Asked what the government has done to advocate biotechnology, Mr. Dorr said the administration and the U.S.D.A. have taken the position that decisions need to be based on science and has advocated maintaining a clear and succinct international trade mechanism.

Mr. Dorr finished the interview answering a question about the consequence of $200 barrel oil, a possibility that increasingly has been posed as conceivable in the months ahead.

"If you have $200 a barrel oil, we’re going to have very difficult discussions that will require substantive adaptations," he said. "Who would have thought we would have had $130 oil? Are the markets adapting? We’re clearly suffering stresses and pain, but it has not brought us to our knees. We adapt day by day. I think if you have $200 oil, $7 corn, you will have long-term pricing power that will take food industry down channels of new technology they never thought they would use. They will be more efficient and profitable long-term. Others will go by the wayside and there will be pain felt."

This article can also be found in the digital edition of Food Business News, June 24, 2008, starting on Page 20. Click here to search that archive.

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