Asking questions: Bob Dinneen, President, Renewable Fuels Association

In a story published sic weeks ago in the New York Times, Bob Dinneen dismissed the idea that a rapidly increasing investment bubble could burst before cellulosic ethanol has a chance to hit the market and take the pressure off corn prices.

Corn is the current heart of the ethanol industry, much to the chagrin of cattlemen everywhere. Other cellulosic resources, such as switch grass, are much more expensive conversions, often by a factor of two. Research holds the promise of narrowing that gap but success might still be several years away and there’s no guarantee that the plants currently designed to run on corn can be converted to another resource.

“I don’t get all that worried that we are building too fast,” he said. “I am not bright enough or foolish enough to try to control the market.”

Many who were either brighter or more foolish than Dinneen have tried. In the late 1970’s, the Bass Brothers tried to corner the market on silver. They got close, but no cigar. Today, the ethanol industry is awash in piles of silver: volatile investment money lured by the ephemera of renewable fuel’s huge, short-term profit potential.

It certainly has the odor of the great dotcom run-up of the late 1990’s - lots of money rushing in to fill a real or imagined business proposition, followed by an inevitable and painful shakeout as only the strongest survive.

Dinneen looks at it as an opportunity for American agriculture, at least for the corn growing segment. Those folks who raise cattle, hogs or poultry may disagree. One thing is certain: there will be some changes in what those animals are fed in the next few years and the livestock industry will be forced to adjust.

But he sees the ethanol business as requiring federal support through tax incentives to “build” itself into a strong and mature industry. A statement he read before the House of Representatives small business committee in May, 2004 strongly urged federal incentives. Now, almost three years later, he still stands behind that plea. (Editor’s note: When an industry storms across the billion dollar a year mark, shouldn’t it be called big business?)

Let’s ask a few questions of Mr. Dinneen about future of American agriculture.

Q. First, let’s take a look at what the alarmists are saying. A recent news story in Meatingplace.com made some alarming statements. It quoted Gene Gourley, an Iowa pork producer and swine nutritionist, testifying on behalf of the National Pork Producers Council to the Senate Agriculture Committee that ethanol producers are receiving huge subsidies of $1.53 per bushel of corn purchased and tax credits of $0.51 per gallon of ethanol produced, resulting in runaway growth in ethanol production. “These incentives have the ethanol industry growing at an almost unbelievable pace,“ he said in his testimony. “New plants are springing up everywhere, and they’re using a lot of corn.”

A. The same story said Lester R. Brown, president of Washington think tank Earth Policy Institute, compiled figures concerning ethanol plant construction and planned construction, and suggested that USDA projections of the amount of corn needed to feed the ethanol industry are far short of actual demand. “By 2008,” he said, “automobiles will be eating as much corn as is in the food system, and that will endanger the global food supply. One 25-gallon tank of ethanol consumes an amount of corn that would directly or indirectly feed a person for a year.”

Q. Janet Larsen, director of research at EPI, said corn growers may or may not make up the difference by planting more and more productive corn, but the inevitable result is higher food prices. “Increasing the subsidies for ethanol production, as the Democrats are suggesting, is completely uncalled for,” she told Meatingplace. “Higher food prices could cause a consumer backlash against ethanol.”

EPI suggests instead that fuel efficiency standards be increased to lower dependence on ethanol and that tax credits for ethanol production be reduced or eliminated.

Although it would be hard to refute Gourley’s claim that ethanol plants are springing up everywhere, the other statements might be open to interpretation. What are your responses?

A. Without question, the growth the U.S. ethanol industry is causing some adjustment in both motor fuel and agricultural markets. But markets have a knack for adjustment and we are seeing that happen today.

In recent months, American farmers have gotten the market signal that more corn will be needed. This added production will come from the ever-increasing yields generated by new hybrids of corn as well as by the planting of additional acres. With a good growing season in the Corn Belt, the preliminary reports of farmers planting intentions could yield a corn crop well in excess of 13 billion bushels. That would more than satisfy the feed, fiber and fuel markets for corn.

While farmers are making the necessary adjustments, the U.S. ethanol industry is improving its efficiency and its technology. Improvements industry wide are yielding far greater volumes of ethanol from the same bushel corn, today averaging 2.8 gallons per bushel. Technological developments are also bringing cellulosic ethanol production from corn stalks and switch grass closer to reality than many people would think.

American farmers are more than capable of feeding the world and fueling our nation. More corn will be produced, new technologies will be developed and agricultural markets will adjust. The U.S. ethanol industry has been a tremendous success story in rural America, providing not just a better return on investment for farmers but real economic opportunity on Main Street.

Critics of ethanol tend to take just a snapshot in time and fail to see the big picture. The industry as it exists today will not be the industry we see just three years from now. Corn and petroleum markets will likely look different in the future as well. But the real result of these changes will be a stronger rural economy and a more secure energy future for all Americans.

Q. In the Los Angeles Times, Sara Hessenflow Harper, a national security and climate policy analyst with Environmental Defense in Washington, D.C., said that newer forms of “cellostic“ ethanol fuel are being developed from rice stock, cow manure, wood chips and other California agricultural products, and that they could make a big dent in carbon-based fuels. As an example, she cited Brazil, where ethanol from sugarcane is widely used.

“Unfortunately, for too long, the environmental movement has looked at ethanol for all its negatives … instead of looking at what it could be,“ Harper said. What can you say about the positives of increased ethanol use as well as production alternatives to corn?

A. Sarah Hessenflow Harper and the Environmental Defense have indeed recognized that cellulosic ethanol technology will be built upon the foundation of grain processing, and that both forms of ethanol production are significantly better than gasoline. The benefits of ethanol production and use run the spectrum from environmental to national security to economic.

Ethanol production in 2006 alone helped create 160,000 new jobs and raise household incomes by some $6 billion. The production and use of nearly five billion gallons of domestic ethanol also reduced our dependence on foreign oil by some 170 million barrels. That meant more than $11 billion stayed here at home as opposed to being sent to place like Venezuela.

Last years ethanol use also reduced greenhouse gas emissions by the equivalent of taking more than one million cars off American roads.

The benefits ethanol offers will only continue to grow as ethanol production and use expand. As new areas begin producing ethanol and new feedstocks are developed, the ethanol industry is poised for exponential growth. The result will be economic opportunity spreading beyond the small communities of the Midwest, a tremendous reduction in greenhouse gas emissions, and a bold statement about America’s commitment to energy independence.

Q. The Governors’ Ethanol Coalition claims governors representing about half the states are members and they’re calling for a doubling of production by 2010 – just three short years from now. There are at least half a dozen federal agencies with an interest in ethanol, too, indicating a large political backing for increasing production. If ethanol is indeed the fuel of the future, what will that future look like? Talk to me about the changes that might occur in fuel retailing, automobiles, farm equipment and what the cost-per-gallon might be if the industry grows to the point that it will no longer need federal subsidies to thrive.

A. There is tremendous bipartisan support for expanding the production and use of renewable fuels all across the country. More than four out of five voters believe the government needs to be investing far more aggressively in renewable fuels to reduce our dependence on foreign oil. The most important factor assuring the continued growth in domestic renewable energy is consistent federal tax, trade and fuel standard policy. If we are to reach the goals many Americans hope for with respect to energy independence, we must not repeat the mistakes of the past and allow our support for renewable fuels to waver.

But, as our industry expands and the use of ethanol spreads, changes in our fueling infrastructure will be needed: new blending facilities capable of handling larger volumes of ethanol will be required, more stations will need to be equipped to dispense E85 (85% ethanol), and greater production of vehicle capable of maximizing the benefits of higher ethanol blends will have to come.

Fortunately, all of these are happening. Today, more than 1,000 E85 retail stations exist across the country. During a meeting at the White House, America’s major automakers pledged to produce half of their new vehicles as flexible fuel by 2012.

Likewise, as you see new feedstocks, such as corn stalks and switch grass, turned into ethanol, it will require machinery to not only harvest the grain but gather and deliver the cellulosic material that remains.

The opportunities that the increased production of renewable fuels offer American agriculture are exciting and at the same time challenging. I, for one, would prefer to put the energy future of our country in farmers’ hands than trust hostile dictatorships across the globe.

Q. With more and more farmer’s coalitions backing the construction of new ethanol facilities come the potential of tremendous economic growth in some economically disadvantaged rural areas. At the same time, the current increase in the price of corn has hurt the cattle, pork and poultry industries. With increased usage of corn for ethanol production, the prospect of steadily rising prices looms and it indicates a major change in the financial structure of U.S. agriculture might be well underway. What are your thoughts on the subject?

A. Change in coming to American agriculture. There is no doubt about it. But opportunities abound.

Ethanol is the most effective value-added industry for American agriculture. It is allowing farmers to not only receive a more reasonable price for their crop but to invest in an industry adding value to their bushels.

Opportunities for synergistic relationships between ethanol production and the livestock industry are just now being discovered. Ethanol facilities in Nebraska and Texas are turning billions of pounds of cattle manure into the power source for ethanol production. At the same time, they are able to feed wet distillers grains, the high nutrient co product of ethanol production, right back to the herds literally using both ends of the cows. Similar relationships could be established with poultry producers as well.

As USDA Secretary Johanns has stated, it will take some time for the market to sort its way out. It is important that all of American agriculture keep the big picture in mind. I believe what comes of the rise of rural America will be a benefit to all of agriculture.

Increased ethanol production isn’t just a North American phenomenon. Brazil is a major player and we can expect any country with a significant farm economy to step in. What other countries will participate and what will happen to world energy usage – what kinds of resources will be consumed and how they will be consumed – as production increases?

There isn’t a corner of the globe today that isn’t looking at renewable fuel production and use for many of the same reasons as the U.S. Beyond Brazil, nations like China, India and those in the European Union have all taken aggressive steps to foster their own domestic renewable fuels industries utilizing the feedstocks available to them.

In the not too distant future, a world market for ethanol will truly develop and may even present opportunities for U.S. companies to export ethanol. The co product of ethanol production, distiller’s grains, is already establishing a world market as the European Union and Japan continue to increase their use of this high value livestock feed.

As the industry moves to grain and cellulose production, technology around the globe will evolve to take advantage of the many energy crops available. It may be palm oil for biodiesel, sugarcane for ethanol or other feedstocks for biobutanol and other renewable fuels.

Q. Some lawmakers say ethanol will be the major driver behind the new farm bill. Backing that claim, Senator Harkin, the Senate Agriculture Committee Chairman and the Chair when the last farm bill was written in 2002, has set a hearing on renewable fuels as the Committee’s first of 2007. What effect do you see ethanol having on the bill?

A. Ethanol and renewable fuels will no doubt play a significant role in the development and passage of the next farm bill. Renewable fuel production is leading a rural renaissance across the country that can’t be ignored. Senator Harkin, Congressman Peterson and every other lawmaker on Capitol Hill understand the importance of ethanol not only to rural Americans, but to our nation’s energy and national security as well.