The Impact of Ethanol Production on Prices of Agricultural Products in the U.S.A.
Introduction
The energy crisis in the early 1970s as a result of Organization of the Petroleum Exporting Countries (OPEC) oil embargo disrupted global oil and energy supplies and prices. In addition the ambition to improve air quality and reduce dependence on foreign oil imports saw the federal government adopting various mandates and subsidies to enhance the domestic oil and energy production. These initiatives stimulated massive growth in the ethanol production sector. Ethanol production in the United States grew from just a few million gallons in the mid-1970s to over 1.7 billion gallons in 2001. Growth in ethanol production has provided an economic stimulus for U.S. agricultural sector, because most ethanol is made from corn. The increase in ethanol demand has created a new market for corn, and agricultural policymakers see expansion of the ethanol industry as a way of increasing farm income and reducing farm program payments, while helping the U.S. economy decrease its dependence on imported oil.
Importance of Ethanol
Ethanol is simply defined as alcohol that is produced by fermenting sugars and can be drinkable as beer, wine and spirits. Fuel ethanol is undrinkable ethanol that has other compounds and contains no water (Mosier & Ileleji, nd). Ethanol replaced lead additives as an octane enhancer as the Environmental Protection Agency began to phase out lead in gasoline in the 1980s. It has been used as a replacement for methyl tertiary butyl ether (MTBE), an oxygenate, that is believed to be harmful to the environment (Waage, 2008). Mixing ethanol with gasoline is regarded as a means of increasing the nation’s gasoline supply. Most cars and trucks can use gasoline and ethanol blends of up to 10% ethanol known as “E10” and modified vehicles can use either gasoline or a fuel blend with up to 85% ethanol (E85) ( aaaaa) . Corn is the main source of ethanol in...