From: By Andrew Stern
Published November 9, 2007 12:21 PM

Politics of ethanol is to make more, Iowans agree

MUSCATINE, Iowa (Reuters) - For Iowans, ethanol is a home-grown success story few presidential candidates would dare sully in their search for votes as the harvest season ends and campaigns ramp up in earnest.

In stump speeches and position papers, Democratic and Republican hopefuls vying for Iowa's January 3 first-in-the-nation caucuses pay regular homage to the biofuels industry.

The industry has created tens of thousands of jobs in Iowa -- and more than 150,000 across the United States -- and is credited with lifting the prices paid to farmers for their crops, and even eased the pain at the gas pump.

"Anything that helps the farm economy gets votes here," said Kenny Strasser, 62, whose family raises grain crops in Marengo.

But all is not well in the biofuels industry.

Ethanol plants in Iowa, the leading U.S. state for both corn and ethanol production, are struggling to make a profit despite soaring oil prices. A few plants on the drawing board have halted construction as price margins have shrunk due to a doubling of corn prices to near 10-year highs. Demand from ethanol producers consumed a quarter of the U.S. crop.

The country's ever-expanding ethanol output of 7 billion gallons (32 billion liters) this year, which gets blended with gasoline usually at a 10 percent ratio, does put a dent in America's growing appetite for gasoline, which is roughly 140 billion gallons (636 billion liters).

"It's tough because of the disconnect between ethanol producers and the consumer," said Monte Shaw, a spokesman for the Renewable Fuels Association in Des Moines. Consumers want blended fuel, but cannot always get it, he said.

Regional gluts of ethanol, pushing down prices, have been caused by purported distribution bottlenecks. But Shaw said the problems were illusory, created by oil companies resistant to a competing industry's product.

Among the top presidential contenders, only Republican Sen. John McCain would scrap the 51-cent-a-gallon federal tax incentive for ethanol, which goes to the blenders, usually oil companies.

The economic struggles of biofuel producers have eased of late with oil prices hovering around $100 a barrel, which have dragged ethanol and soy biodiesel fuel with it.

"It's five to 10 cents a gallon cheaper than regular gas, so not just farmers benefit," Philip Jones, a retiree in Amana, said of the 10 percent blended fuel. "In Iowa, ethanol's a done deal, but not nationally."

Not all Iowa's farmers benefit.

Sherry Child said her brothers raise cattle and grow corn to feed the animals and have little to show for the jump in corn prices.

Higher crop prices have translated into price hikes in the grocery store. Economists say an estimated 4 percent rise in food prices this year, compared with a normal 2.5 percent, mostly affects the poor in the United States and overseas. Still, the morality of growing crops to fill gas tanks rather than hungry mouths has been questioned.


In spite of the industry's struggles, it has acquired some populist, save-the-farmer sentiment and gained green credentials that many candidates have latched onto.

Front-running Democrat Hillary Clinton fine-tuned her energy proposals this past week, with plans to boost biofuels output and usage many-fold over the coming decades a centerpiece.

"If we do this right, I believe we can create 5 million new jobs," Clinton said in Amana.

Fellow Sen. Barack Obama, in eastern Iowa, was enthused at the prospect of farmers eventually using every scrap of plant material they grow to make cellulosic ethanol.

Cellulosic technology is still young and unproven on a mass scale. The process extracts fermentable sugars from grasses, woodpulp or agricultural plant wastes that are not part of the food chain.

"We can build jobs and industry, particularly in rural areas," he said.

The candidates tend to touch lightly on doubts raised about ethanol concerning the amount of energy and water used to produce it.

Most of the presidential candidates offer similar paeans and policies in support of biofuels, said Shaw of the Renewable Fuels Association.

While maybe not a top issue for U.S. voters, he noted it touched on other areas of concern, including the value of the dollar and the trade deficit, reliance on foreign oil and greenhouse gas emissions.

(Editing by Lori Santos and Peter Cooney)

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