Cost of Corn: The Trade-Offs of Ethanol Production

The George W. Bush administration's creation of subsidies for corn production aimed to promote the use of ethanol as a fuel source. However, the subsidies resulted in negative downstream effects. Ethanol in fuel reduces its efficiency (so you have to buy gas more frequently). Ethanol producers received subsidies, but corn sold for food didn't. This raised corn and corn-based food prices, hurting the poor.

Farmers bought cheap land in locations unsuitable for corn production or switched to easier-to-grow crops if they couldn't afford extra land due to financial incentives. Western Kansas corn requires heavy irrigation. The South Dakota-Texas Panhandle aquifer was massive, but the City of Hays now must truck in water because increased irrigation and a long drought depleted this aquifer. The subsidies had significant unintended consequences, reminding us of the importance of considering the full impacts of government policies.