Fed chairman calls for elimination of Brazilian ethanol tariff; says the move will reduce food price inflation

February 29, 2008

In Washington, Federal Reserve Chairman Ben Bernanke said that he favors reduction of the Brazilian ethanol tariff, to reduce pressure on food prices from diversion of the corn crop to ethanol production. The chairman added that he is an open trade advocate and was unsure of the exact impact that ethanol is having on food prices.

In Washington, Midwestern lawmakers have vehemently opposed moves by the Bush administration to reduce or eliminate the tariff on Brazilian ethanol imports. Sen. Chuck Grassley, the ranking Republican on the Senate Finance Committee, said on he opposed the Bush administration move, while Sen. Ben Nelson of Nebraska said the protection for US ethanol would be eliminated “over my dead body”.

In late January, U.S. Energy Secretary Sam Bodman, commenting on the future of the ethanol tariff, said that the Bush Administration “will start to deal with that question” in the 2009 US Budget that the President will send to Congress on Monday. The 54-cent tariff, which primarily applies to Brazilian ethanol, tariff is due to expire at the end of this year.

Critics say that it should not be renewed in order to reduce ethanol prices and bring more supply to East Coast markets. Bodman did not comment on the 51-cent per gallon ethanol subsidy, which will not expire until 2010.

In New York last month, Sen. Charles Schumer (D-N.Y.) said that he would introduce a bill to temporarily repeal the ethanol tariff, to make more corn available for dairy farmers and reduce milk prices. He noted that milk prices have increased 38 percent in the past year in New York, and that the ethanol tariff of 54 cents on every gallon of imported ethanol, had made the problem worse. The ethanol tariff, he pointed out, was established in 1980 when ethanol production was negligible, but that production had increased to more than 7 billion gallons in 2007.

In December, the Brazilian Foreign Minister, Celso Amorim, said that “if we want to be serious about climate change, trade barriers must be removed promptly and unconditionally.” He added criticism of the United States for not signing the Kyoto Treaty.

President Bush affirmed last March that the tariff on Brazilian ethanol would remain in place until 2009.