Ground Cover North : Ground Cover 063 August 2006 - North
AUGUST 2006 GROUND COVER 13 Bio-fuels With powerful political backing, ethanol is becoming the latest 'gold rush' in the US, already reshaping rural economies. This is an extract from a New York Times report on a fascinating agricultural phenomenon n Dozens of factories that turn corn into the gasoline-substitute ethanol are sprouting up across the United States, from Tennessee to Kansas and California, often in places hundreds of kilometres away from where corn is grown. Once considered the green dream of the environmentally sensitive, ethanol has become the province of agricultural giants that have long pressed for its use as fuel, as well as newcomers seeking to cash in on a bonanza. The modern-day gold rush is driven by a number of factors: generous government subsidies, surging demand for ethanol as a gasoline supplement, a potent blend of farm-state politics and the prospect of generating more than 100 per cent profit in less than two years. The rush is happening despite concerns that large-scale diversion of agricultural resources to fuel could result in food price increases for people and livestock. And despite doubts about whether the fuel provides a genuine energy saving, at least 39 new ethanol plants are expected to be completed over the next nine to 12 months, projects that will push the US past Brazil as the world’s largest ethanol producer. The new plants will add 5.3 billion litres a year, a 30 per cent increase over current production, according to Dan Basse, president of AgResources, an economic forecasting firm in Chicago. By 2008, analysts predict, ethanol output could reach 30 billion litres a year. For all its allure, though, there are hidden risks to the boom. Even as struggling local communities herald the expansion of this ethanol-industrial complex and politicians promote its use as a way to decrease America’s energy dependence on foreign oil, the ethanol phenomenon is creating some concerns in other farming industries. Some agricultural economists and food industry executives are already worrying that ethanol, at its current pace of development, could strain food supplies, raise costs for the livestock industry and force the use of marginal farmland in the search for more acres. “This is a bit like a gold rush,’’ warns Warren R. Staley, the chief executive of Cargill, the multinational agricultural company based in Minnesota. “There are unintended consequences of this euphoria to expand ethanol production at this pace that people are not considering.’’ Mr Staley’s concern is Cargill’s stake in keeping the price of corn low enough to supply its processed food and livestock interests. But some energy experts also question the benefits of ethanol to the US’s fuel supply. While it is a renewable fuel that reduces gasoline pollution, large amounts of oil or Fast money and politics drive ethanol rush A cornfield borders an ethanol plant near Cedar Rapids in Iowa, US. natural gas go into making ethanol from corn, leaving its net contribution to reducing the use of fossil fuels still debatable. However, this has not stopped ethanol becoming one of the hottest investments in the US. Archer Daniels Midland, an agricultural processing company in Decatur, Illinois, and the industry leader that has been a champion of transforming corn into a fuel blend, has enjoyed a doubling in its stock price and profits in the past year. One ethanol producer has already sold shares to the public and two more are planning to do so. And the get-rich- quick atmosphere has drawn in a range of investors, including small farm cooperatives, hedge funds and even Bill Gates. For all the interest in ethanol, however, it is doubtful whether it can serve as the energy saviour President Bush has identified. He has called for biofuels – which account for just three per cent of total gasoline usage – to replace 1.6 million barrels a day. That the US is using corn, among the more expensive crops to grow and harvest, to help meet the country’s fuel needs is a testament to the politics underlying ethanol’s 30-year rise to prominence. Brazilian farmers produce ethanol from sugar at a cost roughly 30 per cent less. But in America’s farm belt, politicians have backed the ethanol movement as a way to promote the use of corn, the nation’s most plentiful and heavily subsidised crop. Those generous government subsidies have kept corn prices artificially low – at about $2 a bushel – and encouraged flat-out production by farmers, leading to large surpluses symbolised by golden corn piles towering next to grain silos in Iowa and Illinois. Also, Iowa is home to the US’s first presidential caucuses every four years, so just about every candidate who visits the state now pays homage to ethanol. “All incumbents and challengers in Midwestern farm country are by definition ethanolics,” says Ken Cook, president of Environmental Working Group, a non-profit research policy group in Washington. Cargill’s Warren Staley fears the ethanol rush could distract farmers from the traditional primary goal of agriculture; raising food for people and animals. “We have to look at the hierarchy of value for agricultural land use,’’ he says. “Food first, then feed for livestock, and last fuel.” Even so, Cargill recently announced plans to nearly double its American ethanol capacity to 800 million litres a year. Beyond improving corn yields, others say the greatest hope for ethanol lies with refining technology that can produce the fuel from more efficient renewable resources, like cellulosic ethanol from straw, or agricultural waste. While still years away, cellulosic ethanol could help overcome the concerns inherent in relying almost exclusively on corn to make ethanol. But such alternative ethanol production is up against the immediate investor frenzy. Oil prices at US$70 a barrel have sharply lifted the prices paid for ethanol, so that the average processing plant is earning a net profit of more than $5 a bushel on the corn it is buying for about $2 a bushel. And that is before the 51¢-a-gallon tax credit given to refiners and blenders of oil imported from the Persian Gulf who incorporate ethanol into their gasoline. To fill that gap with corn-based ethanol alone, agricultural experts say that production would have to rise to more than 200 billion litres a year. At least half the nation’s farmland would need to be used to grow corn for fuel. But statistics like this have done nothing to diminish the enthusiasm of the promoters, investors and struggling rural communities for whom ethanol is a godsend. “These projects are bringing 100 new jobs to our town,’’ says Don Cumpton, Hereford’s director of economic development. “It’s not as if Dell Computer’s going to be setting up shop here. We’d be nuts to turn something like this down.’’ PH0TOLIBRARY.COM BIOFUELS IN EUROPE The Hungarian unit of Swedish company SEKAB has announced that it will build four bioethanol plants for up to 380 million euros to meet higher demand for biofuels. Sekab's Hungarian arm, BKZ Beruházásfejlesztési Zr t, will produce 600 million litres of ethanol a year, much of it for expor ts, once the four plants are up and running in 2008. The plants will use 1.5 million tonnes of grain, mostly maize but also some wheat. The plants, which will employ 300 peo- ple, will also produce 460,000 tonnes of animal feed raw materials and some liquid carbon dioxide as by-products. The firm will sign contracts with grain suppliers for 10 years. Hungar y has millions of tonnes of sur- plus grain, mostly maize, in its stores after two record crops, which the government wants to use to produce more biofuels.
Ground Cover 062 June-July 2006 - North
Ground Cover 064 September-October 2006 - North