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Published on Friday, April 14, 2006 by the American Prospect <http://www.prospect.org>
Ethanol could be a huge boost to small farmers and the rural economy. But unless we are vigilant, the big winners could be the usual suspects.
by Christopher Cook
When president bush suddenly embraced wood chips and biofuels on national television, renewable energy producers received a prime-time injection of hope. Ethanol backers forecast a boon for farmers and the environment. Yet serious questions remain about whether ethanol merely enables our addiction to an unsustainable auto-centered society -- unless it's part of a broader shift in consumption and production.
Equally critical is the matter of what a carbohydrate economy means for America's two million farmers (by no means a monolithic lot), and for the future of sustainable agriculture. Will biofuels benefit smaller growers, or just large-scale producers and agribusiness? How will pressures for increased production and reduced energy prices effect farmers? Would small and mid-sized growers fare any better in the energy economy than they have in a rapidly consolidating food economy that has driven so many off the land and into poverty?
The stakes are significant: Protecting smaller-scale, diversified farms is intrinsic to ecological stewardship and rural economic health, sustainable farming advocates (and some biofuels proponents) argue. A major biofuels expansion could spur yet more large-scale industrial agriculture, which often relies heavily on petroleum-based fertilizers and pesticides and deploys fuel-guzzling farm machinery. Pressures for large-volume production and cheap energy might ultimately harm smaller farmers and the environment -- unless there are explicit policies to protect both.
The exploding ethanol market has brought U.S. corn growers -- and agribusiness firms like Archer Daniels Midland (ADM) and Cargill -- a harvest of fresh cash: a crop of 1.25 billion bushels in 2004 (projected to be 1.6 billion by the end of this year), worth more than $3 billion, according to a study prepared for the Renewable Fuels Association. Ethanol's direct and spin-off effects, the trade group says, include an estimated 147,206 jobs created, $14 billion added to the U.S. gross domestic product, and a trade benefit from reducing oil imports by 143 million barrels. Ninety-five plants across the country, 46 of them farmer-owned, now produce 4 billion gallons a year (1 billion gallons of it by ADM alone) of ethanol. Another 31 plants are under construction.
A growing portion of America's corn harvest -- roughly 18 percent, up from just 8 percent in 2000, according to USDA data -- is now funneled to fuel production. With corn prices consistently below the cost of production and fuel prices marching upward, ethanol has provided flexibility to some growers, particularly those in farmer-owned cooperatives. "Even at the small farm level you can see real opportunities to improve the farm economy by creating new markets and new ownerships," says Patrick Mazza, research director for Climate Solutions, a renewable-energy group based in Washington state. "What's nice for the ethanol farmers in those co-ops is that when corn prices are high they can make money on corn and when corn prices are low they can make money on ethanol."
The epicenter of farmer success so far is Minnesota, where clean-fuel standards and producer incentives have spurred an ethanol boom led by 12 farmer co-ops. In Minnesota's southwestern corner, the small city of Luverne is home to the farmer-owned Cornerstone Co-op, which churns out more than 20 million gallons of corn ethanol annually. Launched in 1998, the cooperative has attracted 220 area farmers who must pony up an initial investment of at least $10,000 and deliver 5,000 or more bushels of corn each year. According to manager David Kolsrud, the plant produces a healthy return of 30-plus cents per gallon, and "through the first eight years of operation [farmers] have gotten back over five times their original investment … From a rural development standpoint we feel very strongly that community-based plants with farmer ownership have a more significant value to the area than having outside ownership."
But as ethanol undergoes an inevitable process of industrialization, and capital requirements intensify, small and medium-sized farmers could be squeezed out unless policies are explicitly designed to promote them. Kolsrud warily observes that "the industry trend is toward larger facilities which are either owned by farmers, or, as in many cases, are owned by Wall Street investors and other bigger entities getting into the business." Kolsrud remains optimistic that small co-ops can survive -- "for a while" -- by selling ethanol through larger marketing alliances, but the long-term picture for farmers is unclear.
This corporate presence is nothing new, says John Crabtree, analyst for the Center for Rural Affairs, a Nebraska-based farm advocacy group. "People need to understand that ethanol production is already an incredibly concentrated market. Archer Daniels Midland and Cargill control the lion's share of ethanol production."
Ethanol leader ADM's market share has actually declined from a stunningly high 60 percent to a still-worrisome 25 to 30 percent in recent years. But a recent analysis by USDA agricultural economists concluded, "The fuel ethanol industry may
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