'Nature of What's to Come':

ADM and W Unite in Ethanol Scam

Hoodwinking American farmers, the general public and the media, while plying politicians with self-serving campaign finance offerings has not only in the past been the way of doing business at Archer Daniels Midland (ADM), but true to its new slogan it is promising to be "The Nature of What's to Come," in the ethanol industry.

Under the guise that it will help rescue a failing farm economy and specifically the nation's corn farmers the "Supermarkup to the World" has managed over the last 30 years to sell the idea that a fuel made from corn should become a major part of the nation's energy policy.

In fact, however, there have not only been persistent doubts about its economic and environmental benefits, but many of its critics see the promotion of ethanol as simply another nefarious way to get the federal government to continuously heavily subsidize ADM, which produces some 50% of the nation's ethanol.

In recent months several events have only added fuel to such an argument, although for the most part the news media and corn farmers themselves have chosen to ignore the dire implications of such events. A quick review of those events shows how the stage is once again being set for ADM to continue to benefit handsomely from such backstage political maneuvering at a substantial cost to US and Mexican farmers, to the nation's taxpayers and to the environment.

Earlier this year California's Gov. Gray Davis was accused of being improperly influenced by political contributions from ADM which led to his ordering in March 1999 of refiners to stop using MTBE by 2003 because the chemical was contaminating water supplies. Canada's Methanex Corp., a major manufacturer of the fuel additive, sought $1 billion in damages for alleged violations under the North American Free Trade Agreement (NAFTA).

NAFTA prohibits unfair protection of domestic industries, and Methanex charged that US officials acted improperly to protect the American ethanol industry, which competes against methanol as a gasoline additive that reduces toxic emissions.

According to Methanex, ADM officials improperly influenced Gov. Davis to ban MTBE by flying him from an appearance in Chicago to a secret meeting at the company's headquarters in Decatur, Ill., while he was still a gubernatorial candidate in the summer of 1998. Methanex also alleged that ADM influenced the governor by giving him contributions totaling about $200,000.

Davis had requested an ethanol waiver because of concerns that compliance would lead to a spike of at least $450 million annually to Californians' gas bills based upon a report by the California Energy Commission, which said that implementation of the mandate would add three cents a gallon to fuel prices. Methanex officials argued that Davis's oxygenate waiver was being used as a ploy by the governor to make it appear he wasn't siding with ethanol.

In June, President-Select George W. Bush issued an order requiring California to use ethanol as a gasoline additive. Prior to Davis's order and the Bush ruling, California had been using the petroleum-based additive MTBE to reduce air pollution from vehicles. The administration's ruling meant California, one of nation's largest consumers of gasoline, lost its exemption from forced ethanol use.

The Bush order was immediately hailed by corn farmers and farm state politicians as being a significant boost to corn producers. Iowa Corn Growers Association president David Boettger said that the mandate could mean the sale of nearly 200 million more bushels of corn to meet the demand. Iowa Gov. Tom Vilsack said Bush's decision on corn-based ethanol sales to California was "great news" for the state, the nation's largest corn producer, and "could add ten cents to 15 cents per bushel to the value of corn."

National Farmers Union President Leland Swenson praised the EPA decision, noting that the family farmer and rancher organization applauded the action as a benefit for farmers, rural communities and all Americans who enjoy clean air, clean water, and reliable sources of energy. "The action by the administration to maintain clean air standards is good policy," said Swenson. "It is good for farmers and rural communities. It is good for consumers who need clean, safe and reliable fuel sources. We need policies that recognize that the solutions to many of today's energy and environmental challenges can be found on the farm.

"The demand for ethanol, biodiesel and other renewables is on the increase," he added. "Farmers are eager to produce for this market. Americans continue to recognize the importance and value of renewable, farm-produced sources of fuel and energy. We commend the administration for its leadership on this important policy matter."

Keith Dittrich, President of the American Corn Growers Association (ACGA) also commended Bush and the EPA for holding firm on the oxygenated fuel requirements for the state of California. "This decision brings long-term stability and provides a positive future for the ethanol industry," stated Dittrich. "This will strengthen our industry by allowing our current ethanol plants to continue producing renewable, home grown, clean burning motor fuel. This decision also provides new, and expanding facilities the financial stability to develop production and provide alternative markets and value added processing for farmers. America's farmers can meet the demand!"

Meanwhile, ethanol-industry officials believe the Bush decision will launch over $1 billion of construction projects in dozens of farm belt communities as the industry will need to expand capacity by roughly 30% to produce the 580 million gallons of ethanol that California will potentially need annually by 2003.

Ethanol-industry officials are also optimistic the California ruling means the administration probably won't grant similar exemptions to Northeastern states such as New York and Connecticut.

Obviously the company that stands to benefit most from the administration's decision is the nation's largest commodity processor. "This is a clear win for ADM," said David Nelson, an industry analyst at Credit Suisse First Boston in New York.

"There's only a finite amount of crude oil and natural gas. With ethanol, we grow it. It's very difficult to argue against it," said Larry Cunningham, ADM senior vice president for corporate affairs. "The president has said he wants renewable fuels to be a part of his energy policy. His father was pro-ethanol when he was president. We think we're on the side of the angels," he said.

While ADM, its friends in government and most corn farmers were thinking in heavenly terms, other were looking at the ruling more in down-to-earth and below terms.

As nationally syndicated farm columnist Alan Guebert wrote several weeks prior to the Bush announcement:

"Before farmers get too giddy, an unadulterated view of reality is in order. First, according to USDA's Office of Energy, each 100 million bushels of corn made into ethanol boosts US corn prices two to four cents per bushel. If oilman Bush favors farmers ... California's ethanol needs could raise corn prices a modest five to ten cents per bushel.

"Second, if oilman Bush fails to deliver California -- a state he lost in the last election, wants to win in the next one and holds ten times more votes than farmers hold nationwide --- today's massive ethanol production expansion looks like a prelude to an industry shakeout.

"Third, global economics and geopolitics, not just US ag economics or California politics, heavily influence ethanol's long-term profitability. The production and price of crude oil, the president of Venezuela, some billionaire Arab sheik, a European recession, new technology to make oxygenated fuel, China and South America's growing corn production, US tax policy and a continuation of an unchanged Freedom to Farm after 2002 are all downward price pressures that will easily --- as easily as today's price shows -- suppress some or all of ethanol's upward price push on the US corn market."

Others also voiced skepticism if not outright scorn at the Administration's decision.

Janet Hathaway, a lawyer for the Natural Resources Defense Council, a specialist in fuels and vehicles, told the Wall Street Journal that the decision "means that the whole country has to use ethanol in every gallon of reformulated gas, which means suddenly a lot of demand has to chase a limited supply, which always means prices go up."

Ethanol may also have other problems in California, David Sykuta, executive director of the Illinois Petroleum Council in Springfield, Ill., told the Peoria Journal Star.

While acknowledging ethanol's ability to reduce carbon monoxide in automobile emissions, Sykuta raised the issue of ozone pollution. "There are questions about how you would use ethanol in the summertime when you have ozone problems," he said, referring to ethanol's tendency to evaporate in warm weather.

"The biggest problem is that ethanol can't go in a common carrier pipeline. Almost all of the fuel used in this country travels by pipeline. But because of ethanol's tendency to attract water and its corrosive qualities, ethanol would have to be moved around by truck and rail car," he said. "Maybe in California, they could make ethanol out of rice but that wouldn't make our corn farmers too happy."

"This was political pandering to the farm lobby and the other companies that benefit from increased ethanol," Keith Ashdown of the Washington, D.C.-based watchdog group Taxpayers for Common Sense told the Des Moines Register. He cited in particular ADM as the largest beneficiary of a federal tax break on ethanol that was extended in 1998.

In the early 1970s when the nation was gripped by an "energy crisis" it was ADM which seized upon the already farmer-proven idea of distilling large amounts of surplus grain into a new domestic fuel called gasohol --- gasoline mixed with one-tenth ethanol made from corn. With generous financial help, to the tune of more than $4.6 billion in subsidies and tax breaks from Congress and the various state governments between 1979 and 1989, ADM soon became the nation's leading ethanol producer controlling over 55% of that market. A CATO Institute study estimated that during this period 43% of ADM's profits came from federally subsidized products like ethanol.

Despite the fact that it regularly makes nearly every hit list of "corporate welfare;" despite the fact that its biggest champion, former Senate Majority Leader Robert Dole, is no longer in the US Senate; despite the fact that environmentalists no longer are enthusiastic about it as an alternative fuel; despite the fact the General Accounting Office (GAO), the Congress's investigative agency, has questioned its merits, pointing out that the wide use of ethanol led to a increase in feed costs by 22 cents to 40 cents per bushel, raising the cost of poultry, pork and meat; and despite the fact that its biggest producer ADM had become a political liability, the ethanol subsidy, which has cost more than $7 billion to date, is destined to survive well into the 21st century.

Occasioned in 1978 by the Mideast oil shocks, the ethanol subsidy was intended as a short-term incentive for alternative fuels. Later clean-air laws were expected to boost demand and make long-term subsidies unnecessary.

The subsidy gives gasoline blended with ethanol a 5.4 cents-a-gallon reduction in the federal gas tax of 18.3 cents -- equal to 54 cents per gallon of ethanol, since most gas blends contain one-tenth ethanol. Through 1995, that cost the federal highway trust fund, which receives proceeds from gas taxes, $7.1 billion. The tax break, of course, goes to blenders like ADM. The CATO Institute's report estimates that each dollar that ADM earns in profit from ethanol costs the taxpayers of the country $30.

At the same time Cornell agronomist David Pimental was showing that it actually took 72% more energy to produce a gallon of ethanol than a gallon would ultimately yield, due to the energy expended in growing, harvesting, fermenting and transporting the corn.

Watchdog group Common Cause has also found that ADM contributed more than $4.5 million in unregulated "soft money" to politicians between 1987 and 1997. Recipients included Democrats and Republicans. ADM gave $735,200 in total donations to candidates and parties during the 2000 election cycle, including $100,000 to help pay for Bush's inauguration.

A. V. Krebs operates the Corporate Agribusiness Research Project, P.O. Box 2201, Everett, Washington 98203-0201; email; www.

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