Summary: Pursuant to a congressional request, GAO provided information on: (1) the ethanol industry's capability to expand its production capacity; (2) the effects that expanded ethanol production could have on the agricultural sector and food prices; and (3) how increased production could affect certain aspects of the federal budget.
GAO found that: (1) in 1989, the United States produced about 1 billion gallons of ethanol, and studies demonstrated the feasibility of doubling or tripling production; (2) the largest producer operates four ethanol plants with a combined capacity of 600 million gallons, which is about 60 percent of the U.S. production capacity; (3) faced with uncertain market conditions, some ethanol plants have discontinued operations; (4) there are no technological reasons why domestic producers cannot supply the ethanol required; (5) expanded ethanol production would increase both the demand for and price of corn, but this increase would affect other sectors of American agriculture; (6) domestic soybean production would be adversely affected by increased ethanol production; (7) higher corn prices, caused by increased demand from added ethanol production, would increase cattle producers' feed costs and lower their profits; (8) in contrast, the lower prices for soybean meal and other high-protein feed could benefit poultry producers; (9) net farm cash income would increase by an average of about 1.3 percent and consumers would face slightly higher food prices; and (10) increased ethanol production would reduce federal outlays for farm support programs, but federal revenues from motor fuel taxes would also be reduced.
