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Tuesday, August 17, 2010

Federal Ethanol subsidies will affect Industry, West Michigan Corn Growers


As an electronic sign by the road flashed messages last week about “America’s Clean Fuel” and “America’s Peace Fuel,” trucks lined the driveway into the Carbon Green BioEnergy ethanol plant on M-66 near the Barry-Eaton-Ionia county borders.

There were haulers from Vermontville and Clarksville, Portland and Woodland, Stanton and Sunfield, all delivering the source of the patriotic fuel touted for environmental and national security benefits: corn.

And the $60 million plant where a work force of 40 churns out 50 million gallons of ethanol annually is good for business in this rural area halfway between Grand Rapids and Lansing.

“We’re businessmen,” said Brian Haskin, whose Haskin Farms in Ionia County sends the plant  400,000 bushels per year from a distribution hub two miles down the road.
A scoop works in a corn product storage barn at the Carbon Green facility.

“We (farmers) are going to plant what makes us money. If they make it profitable, we’ll find a way to produce it.

“(Corn-based ethanol) is a boost to the local economy.”

No wonder Haskin hopes Congress extends the federal ethanol subsidies set to expire at the end of the year. The plant’s demand not only pushes up the price of corn, it creates a close-to-home market that reduces freight costs. Most of the plant’s 50,000 bushels of daily corn supply come from within 80 miles.

But the impact of the subsidies — a 45-cents-per-gallon tax credit for “blenders” who add ethanol to gasoline and a 54-cents-per-gallon import tariff — extends much further, to motorists and taxpayers.

The well-being of the world is at stake — at least, that’s the message the sign in front of the plant attempts to convey.

“No wars have been fought over ethanol,” the sign read.

Except, of course, the political battle under way.

“If this credit doesn’t go through, there’s a significant chance we’re going to lose some ethanol plants,” said Loren Koeman, a Grand Rapids agriculture consultant who farms about 3,000 acres near Holland and is secretary of the Lansing-based Michigan Corn Growers Association board.

“As it becomes more and more efficient, we need to keep supporting the industry. It’s not like we’re not spending money on the oil industry. We fight wars to protect oil. It’s naive to think there’s no government cost associated with oil.”

And those benefits come at a cost: $1.78 per gallon of gas replaced by a gallon of corn-based ethanol, according to the Congressional Budget Office.

U.S. Rep. Vern Ehlers, R-Grand Rapids, called the subsidies “a gift to the ethanol-producing industry” that need not be re-given.

“Obviously, it’s good for people to have jobs,” he said.

“It’s good for farmers to make money,” Ehlers said. “But is that an economically sound way to do it? It doesn’t generally pay off to give people make-work jobs.”

Besides, Ehlers added: “Should we really be using food to generate fuel in light of the food crisis in many parts of the world?”

A multiyear extension of the subsidies is key to short-term stability and long-term viability of the industry, Koeman said. The 4-year-old Woodbury plant in Eaton County is already on its fourth owner and closed for eight months before reopening in June 2009. This fall, the facility plans to add more than 1 million bushels of corn storage to its pair of 135-foot silos. Each holds 200,000 bushels.

Through the credit, the country’s investment in ethanol will continue to add cleaner-burning fuel into the energy supply and foster less dependence on foreign oil while retaining a productive agriculture base that enhances local economies, Koeman said.

Debate over food supply costs

There is another side to just about every aspect of the corn ethanol debate.

Sam Hines, executive vice president of the Michigan Pork Producers Association in Holt, said ethanol subsidies jack up the cost of feed for hogs, which, in turn, increases prices at the grocery store.

“It’s no secret that pork production, in particular, in recent years has taken a real hit primarily as a result of a diversion of a lot of corn into ethanol,” Hines said. “Now, we’re starting to see that reflected in higher prices in the store. We’re not necessarily averse to bio-fuels, but we need to be careful with how we play around with that. The ethanol industry has matured to where it should be able to stand on its own.”

Walking into a large storehouse with mounds of dried distillers grain, or DDG, Woodbury plant manager Edward Thomas downplayed the food-supply criticism of corn-based ethanol.

The plant generates more than 400 tons of DDG daily as a byproduct of the corn’s 60-hour journey from kernel to “corn beer,” including a lengthy bath in a 730,000-gallon fermenting tank. The “co-product” is sold for animal feed within a 200-mile radius, Thomas said.

“The misnomer is we take (the corn) and it’s gone,” he said. “It’s not.”

As for ethanol standing on its own, Carbon Green supports an idea to phase out subsidies in exchange for investments in infrastructure that would make the fuel more available to consumers.

Walker-based Meijer, for example, has E-85 pumps that contain fuel with 85 percent ethanol at more than 70 of its gas stations, including in Cedar Springs, Knapp’s Corner in Grand Rapids, Holland and Wyoming. Wyoming-based J&H Oil Co. has E-85 pumps at five of its 35 stations.

But with fuel sales down overall, there is little market incentive for gas stations to spend money installing more E-85 pumps, said Mark Griffin, president of the Michigan Petroleum Association/Michigan Association of Convenience Stores.

And, even with publicly funded incentives for pumps or flex-fuel vehicles capable of burning E-85, “where’s the customer going to come from?” he asked.

“The customer is not buying that type of product right now,” Griffin said. “The economies just aren’t there.

“We seem to be in a rush to always turn petroleum into the villain, and we forget that petroleum is here, it’s easy to process and it’s easy to use and it will be for a very long time.”

And there’s the crux: Even though “no beaches have been closed due to ethanol spills,” as the sign at the Carbon Green plant stated last week, will consumers en masse ever respond to that sales pitch?

Changing plans
Congress let biodiesel subsidies expire at the end of 2009 and, as it stands, that soy-based fuel cannot stand on its own.

Nowadays, Michigan Biodiesel does just about everything at its $8.8 million, 4-year-old plant in Bangor except produce the fuel for which it is named.

The plant, down to seven employees, is using its equipment to turn things such as cooking oil and mayonnaise into livestock feed.

It has not produced biodiesel in 18 months.

“The marketplace, I do not believe, has stepped up to make the tax credit so it is not necessary,” CEO John Oakley said. “I’m concerned for the ethanol people. That’s the reason you have subsidies, to take up that slack in the marketplace if you truly are concerned about the environment, air quality and all those good things.”

As a fuel distributor, Crystal Flash Energy, which invested in the biodiesel plant, will transport and sell whatever types of fuel are cost-effective for its customers, said Tom Fehsenfeld, company president.

But there is intangible value in renewable fuels such as ethanol, he said.

Hence, a tax incentive is needed to overcome what Fehsenfeld calls the “hidden subsidies” of conventional fuels — the environmental, health and security costs of burning foreign oil.

“If we charged all of these hidden costs against conventional fuels in the form of taxes, we would probably not need subsidies on alternative fuels,” he said. “We all have to be concerned about the type of world we are passing on to our children and grandchildren.

“It has become clear that some types of fuels are better for the environment and
for national security than others.”

And, surely, some types of fuel are better for Haskin Farms and other corn growers who unload their heaping stores of grain at the Carbon Green plant.

Whether it pays to put ethanol in your tank remains less clear.

“I wish (ethanol) could be self-sustaining but, at this point, it obviously isn’t,” Haskin said. “I’m sure if they do not extend the (subsidy) program, it’s going to be devastating for a lot of farms.”

The arguments

Federal ethanol subsidies are scheduled to expire at the end of the year, and Congress is debating an extension. Here are some of the issues:

    * Ethanol can be made from domestic farm products such as corn and may have environmental and national security benefits.

“It’s a very positive thing for the whole country, not just farmers. It’s a win-win situation.”
— Brian Haskin, Ionia County farmer

    * An existing tax credit spurs demand by giving incentive to blend ethanol into gasoline, while an import tariff shields domestic producers from lower-cost sugarcane ethanol in Brazil. Removing the subsidies could hamper the viability of U.S. ethanol.

“The failure of Congress to maintain ethanol and biodiesel subsidies at consistent levels is severely undercutting those (alternative energy) goals.”
— Tom Fehsenfeld, Crystal Flash Energy president

    * Maintaining the subsidies inflates the price of corn and the cost of meat production, for example.

“If you have to pay 10 percent more for your steak, I guess we feel that trade-off is worth all the benefits.”
— Loren Koeman,Agriculture consultant and Holland-area farmer

    * Dried distillers grain, a byproduct of the ethanol-making process, is billed by the industry as suitable livestock feed.

“We have found that, if you use above a certain level (of DDG), it has an impact both in productivity of the hogs and on meat quality.”
— Sam Hines, Executive vice president of the Michigan Pork Producers Association

    * Eliminating the subsidies could cause an 8 percent drop in corn prices.

“We’re just afraid the bottom would fall out from under us. We’d see a lot of American jobs lost.”
— Jamie Cook, Michigan Corn Growers Association’s ethanol and new use coordinator

    * One proposal from a pro-ethanol network would phase out subsidies in favor of government investment in infrastructure to make the fuel more available to consumers.

“Let’s get it so that all cars can burn a higher blend of ethanol so we can get more of this into the stream.”
— Koeman

    * Can the subsidies spark enough demand for ethanol to stand on its own? And is it worth the cost to U.S. taxpayers of $1.78 per gallon of fuel that is replaced by ethanol?

“No one quite knows what to do with it. It’s hard to know when they’re competitive. It’s pretty hard to say when you won’t need the subsidy anymore.”
— U.S. Rep. Vern Ehlers, R-Grand Rapids