Minnesota’s corn ethanol industry blends subsidies, politics and lobbying

GROWING FUEL: First of four articles.

corn by-product
MinnPost by Jacob Valento
After corn is processed for ethanol, the byproduct is collected and readied to be shipped out for livestock feed.

LAKE CRYSTAL, MINN. — Brad LeMay owns the Humphrey Street Grill in Lake Crystal, a southwestern Minnesota farm community that for years tried to build a new high school. Early last year, that new school opened after voters earlier approved the long-sought referendum.

LeMay credits a nearby ethanol refinery for the voters’ change of heart.

“It’s sure helped our business,” LeMay said of the 52-million-gallon refinery, adding that POET Biorefining’s plant brought enough financial security to the community to allow voters to give their approval in 2005, the same year the plant was built.

POET’s Lake Crystal facility is one 17 ethanol plants in Minnesota and one of 134 that dot the U.S. countryside, annually consuming a fifth of the nation’s corn crop — and nearly a quarter of Minnesota’s — to produce 7.2 billion gallons of ethanol (the very same “white lightning” distilled by moonshiners of lore).

The domestically-produced “biofuel” — seen as an antidote to U.S. oil-import vulnerability — is one of Minnesota’s biggest booming industries.

A mere economic asterisk just a dozen years ago, the ethanol industry is infusing $3 billion and 11,500 jobs into Minnesota’s economy — numbers that the state’s Department of Agriculture expects may jump 65 percent in 2008. Further, the number of plants in the state is slated to grow by four, with at least one major expansion in 2008, pushing annual state production to over a billion gallons, 14 times the level of a dozen years ago.

How did this happen? Subsidies fueled by politics and lobbying.

The ethanol industry is like few others. It is sustained, just as it was nurtured, almost entirely by public spending. The corn ethanol industry wouldn’t exist without billions of dollars in federal subsidies and artificial markets shaped by federal production mandates.

Energy and farm legislation that advanced in Congress last month, for example, gives another hefty push to continuing ethanol subsidies in the form of a 51-cent per gallon blending credit to refiners and mandating production of 36 billion gallons by 2022, quintupling current levels.

And Minnesota’s elected leaders play a pivotal role in assuring the state’s position in the industry. Most ethanol legislation must gain the approval of the U.S. House Agriculture Committee chaired by Rep. Collin Peterson, a Minnesota Democrat whose sprawling Seventh District is quilted with corn fields. The other corn-studded district, Minnesota’s First, is represented by freshman Democrat Tim Walz, also on the Agriculture Committee.

Home to Cargill
Both U.S. senators from Minnesota, Republican Norm Coleman and Democrat Amy Klobuchar, sit on the Senate Agriculture Committee and are advocates of renewable fuels such as ethanol. Gov. Tim Pawlenty backs ethanol as well.

Minnesota is also home to Cargill, a privately-held commodities giant that along with Chicago-based Archer Daniels Midland is a big winner in ethanol’s financial stakes. The companies help provide enough lobbying punch to make ethanol so politically prominent that it has its own Congressional Ethanol Caucus.

The only other state with two senators on the Agriculture Committee is Iowa, the nation’s top corn producer (Minnesota is fourth or fifth, depending on the weather). Iowa is home to 28 ethanol refineries. Liberal Democrat Tom Harkin chairs the committee and is joined on the panel by conservative Republican Charles Grassley, both staunch ethanol proponents.

Grass-roots support for ethanol comes from the National Corn Growers Association and its well-funded state affiliates. They are joined by the Farm Bureau Federation and National Farmers Union, and all are helped by the Washington-based Renewable Fuels Association. Among the industry’s “senior advisers” is D.C. insider and former senate majority leader Tom Daschle of South Dakota.

“Corn is an established industry with extraordinary power in Washington,” said Steven Schier, political science professor at Carleton College in Northfield, Minn. “Ethanol’s fate isn’t going to be squeezed politically by the need for a balanced energy policy.”

But while the business of ethanol is poised to expand even more, economists and others suggest that the upstart industry’s pecuniary intoxication may be starting to sober. Surging demand has driven on-farm corn prices to double historic highs, helping spike food costs while spurring a rural economic revival.

“I see it as somewhat of a mixed blessing,” said Jeff Vetter at County Market in Fairmont, Minn., near where two ethanol plants soon will begin operations. “I’m from a farm family, and I know the cash value of corn.

“But I also know about the impact of higher corn prices on the cost of finishing hogs,” Vetter said, echoing a rising concern over an unwanted impact of ethanol. “Food prices are up here at the store, especially eggs.”

Minnesota led the way
Still, the magnitude of the U.S. ethanol industry is impressive. The 134 plants nationally draw from 16 million acres of fertile farmland for 2.5 billion bushels of corn that’s mashed into 7.2 billion gallons of clear, 200-proof alcohol (what those moonshiners didn’t peddle to bootleggers years ago, they burned in their Model T Fords).

In 1997 Minnesota became the first state to require a 10 percent ethanol blend in gasoline (a half dozen states have since followed in some fashion), a move supported by health advocates to help ease Twin Cities’ air pollution.

Pending Environmental Protection Agency action, in 2013 the ethanol-blend rule will double to 20 percent, with the industry pushing flex-fuel vehicles capable of burning 85 percent ethanol (E85).

The National Corn Growers Association says ethanol production could be doubled to 15 billion gallons without affecting food supply or tilling more ground. That’s because of anticipated advances in corn yields (it increased 23 percent in the last decade alone), new ways of wringing more ethanol out of corn, and crop conversion (during last year’s record corn crop, Kansas “the wheat state” grew mostly corn).

Environmental advocates and consumer groups strongly challenge the wisdom of expanding corn ethanol, citing adverse environmental effects and little actual gain in energy due to intense agriculture practices that corn requires.

Economist C. Ford Runge at the University of Minnesota has written that using corn for ethanol is suppressing worldwide food supply and even driving up prices of corn tortillas, a basic food of impoverished Latin Americans.

But corn ethanol is here and its alternative, ethanol from grasses and other biomass, is not. Cellulosic ethanol has the near-term problems of seed-stock shortages and prohibitive costs for enzymes needed to break down complex plant polymers to enable fermentation.

“It will be several years before cellulosic ethanol is commercially viable,” said David Tillman, a University of Minnesota ecologist. Tillman’s team has pioneered research in making ethanol from cellulose in prairie grass, a perennial that potentially could produce a much higher grade ethanol from plants grown on “marginal” lands and that, unlike corn, require little or no chemicals.

Cellulosic ethanol is gathering key backers, and bills awaiting final action in Congress would commit large amounts of money and other support to the alternative renewable fuel source. In the emerging federal mandate requiring 36 billion gallons of fuel to come from renewable sources, 60 percent must be from biomass or cellulose.

So, what do the politically-active corn producers say about that?

“Our members can grow corn, soybeans or switchgrass,” said Mark Hamerlinck of the Minnesota Corn Growers Association. “We know that corn ethanol is a first-generation biofuel, and our members will turn to growing stock for next-generation cellulosic ethanol as it becomes economical.”

Ron Way, a former reporter for several Midwest newspapers, covers the environment and energy issues. He can be reached at rway [at] minnpost [dot] com.

Tuesday: Does ethanol make environmental sense?

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Comments (5)

  1. Submitted by Bernice Vetsch on 01/07/2008 - 12:22 pm.

    When Mexico signed on to NAFTA and opened its borders to our goods, American agribusiness flooded its market with low-priced corn and beans until 1.5 million Mexican farmers were driven out of business. Many of these farmers are among the desperately poor “illegals” who are blamed by fear-mongering politicians and right-wing talk radio hosts for everything from terrorism to taking jobs that Americans need (but probably do not want).

    Since we now obviously have a home-market for all the corn our farmers can grow, we could perhaps (as Mexico’s president asked that we do last year)help Mexico re-start its agricultural industry. We could thereby do much more to help both our countries than building that wall along the border.

  2. Submitted by Thomas Lutz on 01/07/2008 - 12:49 pm.

    A very good informative, introductory article Mr.Way for those of us still on the front end of the learning curve. Please do more.

  3. Submitted by Jackley Jackley on 01/07/2008 - 04:36 pm.

    Yes, this is a very good start to understanding the complexities of the ethanol industry. Just one tidbit I noticed missing: the production of ethanol (which is very pricey) as it is now, using the ‘dry grind’ process, requires an enormous amount of water and energy. In 2006, Minnesota’s production facilities used an average of 4.2 gallons of water to crank out one gallon of ethanol. Apparently cellulosic ethanol can be produced using far less water.

    By the way, VERY good point Bernice!

  4. Submitted by hokan miller on 01/08/2008 - 06:21 am.

    Ron, will your series address whether we can produce ethanol more cheaply from sugar than from corn, or whether we can save money by importing ethanol rather than producing it here? Thank you for the series so far.

  5. Anonymous Submitted by Anonymous on 04/13/2008 - 04:12 pm.

    Can’t eat ethanol

    “Greater use of ethanol means more greenhouse gases and more expensive food for people and livestock, hardly a fair exchange. There’s a limited role for biofuels, excluding corn, in reducing oil imports from volatile regions, but they are not the answer to the world’s need for energy on the go.”

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