USDA chief says more ethanol-subsidy cuts needed

By Carey Gillam

KANSAS CITY, Mo., Sept 8 (Reuters) - U.S. Agriculture Secretary Ed Schafer criticized U.S. ethanol producers on Monday for depending too heavily on government subsidies and said reductions in government support were needed.

"The ethanol industry has incorporated the fact there are subsidies into their operational, financial models. I think that is a mistake," Schafer said. "They are going to have to see a gradual ... step-down reduction in subsidies."

Schafer said the ethanol industry must eventually become commercially self-sustaining.

"The business model has to operate without the subsidies because eventually they are going to go away," Schafer said on the sidelines of a business journalism conference in Kansas City.

U.S. Republicans called last week for an end to government requirements for ethanol-blended gasoline, a policy backed by the Bush administration. Republican leaders said markets -- not government -- should determine ethanol usage.

Schafer said USDA, in conjunction with the Environmental Protection Agency, the Energy Department and other agencies, plans to roll out a "biofuels action plan" within the next few weeks.

The plan will lay out the government's view of what elements of the biofuels industry the government sees as sustainable. The plan will give an overview of the biofuels industry, and the government's ability to support the industry, Schafer said.

About a third of this year's U.S. corn crop is going to produce ethanol amid efforts to meet the government's Renewable Fuel Standard, which requires 9 billion gallons in renewable fuels to be blended into the nation's gasoline supply this year, and 11.1 billion gallons in 2009.