Perspectives on Potential Agricultural and Budgetary Impacts From an Increased Use of Ethanol Fuels

GAO discussed the potential effects of expanded ethanol production on the domestic ethanol industry, the agricultural sector and consumer food prices, and certain aspects of the federal budget. GAO noted that: (1) there were no technological impediments to increasing the domestic ethanol industry's production capacity to 2.2 billion or 3.3 billion gallons per year over the next 8 years; (2) American farmers could supply the corn necessary to produce those amounts of ethanol, although industry officials believed that farmers would require continued government incentives to maintain such growth; (3) corn producers would benefit from the increased demand for corn to make ethanol and the resulting higher corn prices; (4) the conversion of corn into ethanol generated byproducts, including poultry feed, that would compete with and possibly lower the demand and prices for soybean products; (5) increases in corn feed costs could hurt cattle producers, although the lower cost of poultry feed could benefit poultry producers; (6) overall, net farm cash income would increase, but not in all sectors; (7) expanded ethanol production would cause a slight increase in consumer food prices; (8) expanded ethanol production would decrease federal farm program outlays by an average of about $1.4 billion per year; and (9) the increased use of ethanol fuels could reduce federal motor fuel tax revenues by an average of about $813 million per year.