The Potential of Ag
Successful Agriculture Can Solve the World's Toughest Challenges
With challenges like unpredictable weather patterns, over supply of grain, and falling commodity prices, to say it is hard to be an American farmer would be an understatement. It is even harder to be a profitable American farmer in today’s marketplace.
The United States Department of Agriculture (USDA) forecasts high carryouts that have been steadily growing in recent years. This is spurring concerns of oversupply and depressed prices, which we haven’t seen since the farm crisis of the 1980s.
Innovations in farm equipment, biotechnology, and climate-smart agricultural practices have enabled farmers to produce more on existing agricultural land than population growth can consume. New markets for grain are necessary to soak up the surplus and balance grain markets. In a healthy market, increasing yields are a good thing for America’s farmers. However, instability in international trade markets and uncertainty in domestic markets can hurt producers. Biofuels and growing markets for other American-made bioproducts can provide the stability and balance farmers are looking for to incentivize investments in further technology developments that can provide the solutions to many global challenges.
Without growing markets for agricultural products, farmers end up operating at a loss, defaulting on loan payments, or making the difficult decision to get out of the industry altogether. It may be difficult now to imagine, but think about what the world could look like with a successful, profitable domestic agriculture industry and the ways bioproducts can help achieve this critical goal. Biofuels and bioproducts are the catalyst for successful agriculture. Successful agriculture is key to solving some of our most pressing problems, including energy security, carbon reduction, poverty, hunger, and disease. POET is poised to change the world!
From 2000 to 2013 the biofuels industry grew significantly in the US and around the world. By soaking up surplus grain we spurred an agricultural renaissance that provided economic security for the ag economy, reduced global undernourishment, and lifted over 1 billion people out of extreme poverty. In recent years, biofuels have not been growing enough to continue to balance grain markets, and agriculture is now struggling again with oversupply.
Over the past five years, oil refiners in the U.S imported approximately 440 thousand barrels (18 million U.S. gallons) of Russian crude oil and other petroleum products daily, according to the U.S. Energy Information Administration (U.S. EIA). This represents 8% of all U.S. imports of oil and refined products. Biofuels play a key role in reducing the need for imported crude oil and other petroleum products. Using data from the U.S. EIA, the average Russian oil imports used to produce gasoline ranges from 200 to 225 thousand barrels per day. Overall, this represents the generation of 1.3 to 1.7 billion gallons of gasoline per year.
E15 and E10 exhibit similar fluid characteristics, where facilities and infrastructure supporting the transport and dispensing of E10 fuel can be utilized for E15.
Overall, the conversion of 33% of all E10 fuel in the U.S. to E15 could potentially displace 100% of Russian import generated gasoline.
If the entire Midwestern defense pad (PADD2) alone converted E10 to E15, this could displace 98% of Russian import generated gasoline. This conversion would utilize less than half of the unused ethanol capacity across the U.S.
Farmers are often incorrectly depicted as a culprit when it comes to environmental damage when, in reality, farmers are the key to solving it.
Low-till, no-till, and ridge-till farming leave crop residue in the fields after harvest and increase the soil’s carbon content. The heavy residue cover protects the soil from erosion and provides an excellent environment for soil microbes and earthworms, which take the leftover carbon from the surface and incorporate it deep into the soil. These practices, along with planting cover crops, precision farming, and other techniques that reduce soil disturbance, all help to restore and protect soil health, which allows farmers to use less fertilizer and provide the same amount of nutrients to their crops.
If agriculture is successful, farmers have the ability to invest in climate-smart agricultural practices. However, without a margin in agriculture, farmers don’t have the means to invest in these practices. Expanding markets and soaking up surplus grain will ensure the incentives for ever-improving agricultural practices.
So what will it take to harness this untapped potential? We need agriculture to become profitable again. Without profitable agriculture, farmers are merely trying to stay afloat.
For generations, yields have outpaced demand for grains, which has led to overproduction. In turn, grain values have to often been below the cost of production. With little to no margin in agriculture, the U.S. has continued to subsidize farmers just to break even. This leaves no room for farmers to invest in existing and emerging technologies to create a better, healthier environment. These subsidies also cause a global challenge that leads to increased poverty.
If U.S. farmers can’t make a profit in agriculture, how is the rest of the world expected to farm profitably? By subsidizing U.S. grain farmers, the world has been flooded with cheap, below-market grain and global agriculture systems have been stifled. As a result, surplus grain gets sent around the world, discouraging other countries from developing and building out their own agricultural industries. Impoverished farmers in developing countries cannot compete with this influx of cheap grain. The potential for agriculture worldwide is virtually untapped because for generations (with few exceptions) there has been no margin in agriculture. If we balance grain production with demand, agriculture will flourish and provide solutions for energy security, carbon reduction, poverty, hunger, and disease.
This is the proven way biofuels and bioproducts can help solve global poverty. We’ve developed the blueprint for successful agriculture in the Midwest over the past 25 years through the growth of biofuels. It’s time to utilize that blueprint all around the world to unleash the potential of agriculture.
When biofuel grew from 1% of the U.S. fuel supply to 10%, U.S. farm incomes increased dramatically between 2000 and 2012. Total gross farm income grew from $241.7 billion in 2000 to $483.8 billion in 2013. At the same time, agriculture flourished around the world, and over 1 billion people were lifted out of extreme poverty. During this timeframe, demand for corn, soybeans, and wheat remained steady, with the exception of the biofuels sector.
As the domestic market for corn from the biofuels industry grew, it soaked up enough surplus grain from 2000 to 2013 to balance the commodity markets and help make agriculture profitable. Unfortunately, since the biofuels market stopped growing in 2013, yields have continued to rise, values have declined, and farm incomes have been cut in half.
Strong biofuel and emerging bioproduct markets can also help address global hunger. Without growing domestic markets for increasing corn yields, the U.S. will continue to flood the global market with cheap corn. Cheap grain does not equate to more abundant, affordable food. Just the opposite. Cheap grains mean farmers can’t afford to farm. Bioethanol enhances the world’s nutrition. The US bioethanol industry produces enough distillers grain to feed nearly 550 million people their daily protein requirements. Without bioethanol, that nutrition would not be produced.
When markets are flooded with surplus crops that are sold below the cost of production due to farm subsidies, it depresses world prices. Countries that cannot afford to subsidize goods are essentially shut out of world markets, devastating their local economies. Traditionally, agriculture is the pillar of a developing economy because it provides food security, generates local capital, and creates jobs. If developing countries had a profitable market for their agricultural commodities, they too could invest in infrastructure, which would allow them to move beyond sub-subsistence farming and into profitable agriculture to feed their families and communities.
Farmers need to make a profit off their products, and to do so, they need strong, new and developing markets. At POET, we’re working on getting higher blends of bioethanol into the marketplace so that our industry can grow right along with increasing yields. Currently, the biofuels and bioproducts industry purchases around 40% of the U.S. corn crop, producing clean, affordable fuel, nutritious feed for livestock and many other critical products. This is a critical market for grain, and it needs to expand with ever-increasing yields to balance the market. If the U.S. increased bioethanol in the fuel supply from 10% to 15% nationwide, it would result in a market of almost 2 billion bushels of additional corn demand for the American farmer. This would provide the economic incentive to encourage farmers to employ the latest practices that will help heal the world.
Federal programs like the Higher Blends Infrastructure Incentive Program (HBIIP) and the USDA’s Innovation in Agriculture Initiative signal that policymakers understand that biofuels are the key to insulating and building up our markets for domestic agriculture. These programs will expand access to higher biofuel blends to more consumers.
But we can’t stop there.
We need consumers to understand that fueling their vehicles with bioethanol results in more domestic energy production, a 46% reduction in GHG emissions from the tailpipe, and will provide their vehicles with a higher quality fuel at a lower price. We need to increase the demand for bioethanol and other plant-based bioproducts in order to increase domestic demand and profitability for our farmers. This leads to a better economic future domestically and internationally.
Biofuels and bioproducts are the catalyst for successful agriculture, and successful agriculture can change the world.
