The Success of the Ethanol Lobby

by Whit Jones

    The Renewable Fuels Association (RFA), the national trade association of the ethanol industry, was established in 1981. The RFA now claims an expansive membership base, including Archer Daniels Midland (ADM), the largest single producer of ethanol in the country and historically the most influential political player. Currently, the RFA’s members represent ninety percent of U.S. ethanol production.  Over the last three decades the ethanol lobby has been building its political connections and allegiances, and as a result they have received considerable support from different levels of government, allowing the ethanol industry to develop as well as it has.

    ADM, currently ranked the 56th largest company on the Fortune 500 list in terms of revenue, has a long history of promoting processed corn products.  In the late 1970s as farmers expanded production of corn and the price of the crop fell, the industry began looking for new uses of the crop.  In Japan, a method had been developed to produce a highly concentrated sweetener from corn, and ADM saw this as a possible venture that could be used for the booming soft drink industry. They were able to produce what became known as high fructose corn syrup (HFCS); the only problem was that sugar produced in Brazil was significantly cheaper.  The CEO of ADM, Dwayne Andreas, already a powerful political force, “came up with an ingenious plan: finance lobbying efforts by Florida sugarcane growers to convince Congress to impose a quota on foreign-produced sugar, which had been flooding the U.S. market and keeping prices down.”1 When President Reagan, a friend of Andreas, took office in 1981, he enacted a strict sugar quota and HFCS became cheaper than sugar. The soft drink industry replaced sugar with HFCS, but this created a problem for the corn industry. Demand for HCFS was high during the spring and summer when people prefer soft drinks, but during the winter, there was much less demand for HFCS, so ADM looked for another processed corn product to produce.  This product happened to be ethanol.   

    The challenge of selling ethanol was very similar to that of HFCS; it could not compete with the product it was intended to substitute: conventional gasoline. Due to conditions in the Middle East in the late 1970s oil prices were high, and Andreas decided to capitalize on this by pitching ethanol as an alternative to gasoline.  In the name of energy security, President Carter, a beneficiary of Andreas’ campaign contributions, passed the Energy Tax Act of 1978.  One provision of this act was to exempt gasohol (gasoline blended with 10% ethanol) from the federal fuel tax.  Carter subsequently introduced $340 million in loans for new ethanol plants, and put a heavy tariff on ethanol coming from the emerging Brazilian ethanol industry.  The benefits of these actions to the ethanol industry still exist today; the gasohol tax exemption has grown from forty cents per gallon to fifty-one cents per gallon, and Brazilian ethanol still faces considerable barriers to entering the U.S. market.  These government policies, along with the synergies between HFCS and ethanol production allowed corn to flourish as the most subsidized crop in the country.

    Between 1995 and 2005 the federal corn subsidy totaled over $51.2 billion; that is more than twice as much as wheat subsidies, the second highest subsidized crop. Analysts disagree on whether the ethanol will continue to receive substantial government support.  This past January, the ethanol lobby received its most prominent endorsement when President Bush distinguished it as the fuel of the future in his 2007 State of the Union Address.  With the single most important presidential primary taking place in Iowa, and states like Minnesota and Illinois receiving more national political attention, the influence of the ethanol lobby will only grow.  Alexie Barrionuevo of the New York Times commented “For an industry once dominated by the will of a single powerful producer, Archer Daniels Midland, ethanol has come a long way, joining the oil industry and producers of major agricultural commodities as an entrenched political force in Washington. And it now enjoys a powerful role in presidential politics because of Iowa's status as one of the first states to select delegates to the parties' nominating conventions [2].” The lobby’s reach extends beyond the Executive Branch.  As a result of the election in November 2006, “two Midwestern Democrats from the Corn Belt, Rep. Collin Peterson of Minnesota and Sen. Tom Harkin of Iowa, will tackle the [reauthorization of the 2002 Farm Bill] as the new chairmen of the respective House and Senate agriculture committees, [3]” and they are expected to be friendly to the ethanol industry’s interests.  That being said, the ethanol industry is aware of the fact that there will be a demand for alternative fuels from other sources, so  “ethanol makers are cozying up to the oil industry, forming political alliances and enlisting executives from companies like Chevron as they race to make a quicker transition to cellulosic ethanol made from nonfood crops, like switchgrass [4].” Despite this,  “Some analysts … believe that politics has already trumped economics. ‘Once we have a corn-based technology up and running the political system will protect it,’ said Lawrence J. Goldstein, a board member at the Energy Policy Research Foundation.”

    While it is unclear exactly what course the ethanol lobby will take, and how successful they will be in garnering government support, we can expect that the ethanol lobby will continue to leverage influence on our political leaders.

Footnotes
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1.    Philpott, Tom. How Cash and Corporate Pressure Pushed Ethanol to the Fore, Grist Magazine, 12/06.
2.    “Spring Time for Ethanol,” The New York Times, 1/23/07
3.    “Big Boost for Ethanol,” Forbes Magazine, 11/24/06
4.    “Spring Time for Ethanol,” The New York Times, 1/23/07

Comments

[Stan Cotton]

Corn-based ethanol is a hoax.
Corn ethanol subsidies are nothing more than pork or the result of greedy politicians.
Corn simply is not a justifiable source of fuel for vehicles. Diverting corn from the food table and animal feed stocks to power cars drives up the cost of food, costs tax payers for massive farm subsidies, returns very little energy for the fuel invested to produce it, and harms the environment. Ethanol from corn is simply “no bloody way”-as the Brits would say -to solve our energy dependency.