INCREASED INDUSTRIAL USES OF AGRICULTURAL COMMODITIES - POLICY, TRADE AND ETHANOL

Using agricultural feedstocks for industrial products affects domestic and international agricultural markets, all of which are encumbered with complex policies. This article examines the interaction of three seemingly unrelated policies: the Clean Air Act, the U.S. com program, and European Union agricultural subsidies. More ethanol production, resulting from new regulations associated with the Clean Air Act, increases the use of U.S. com and increases the supply of com gluten feed, an ethanol co-product. Com gluten feed is primarily exported to Europe under a loophole in European Union trade barriers. But recent reform of European Union farm policy will lower the price of the European grain for which com gluten feed is a substitute. This development lowers prices for a major ethanol co-product and thus makes ethanol itself less profitable just as the demand for the fuel is expanding. NAFTA, GATT, and new technologies also play cameo roles in the story.