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Biofuel: Who Benefits - Smaller Growers or Just Large-Scale Producers and Agribusiness? |
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by Christopher Cook
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14 Apr 2006
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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. |
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 very well be in transition toward an inevitable concentration of ownership into the hands of a few large processing firms.” The market is driven by large-scale gasoline refining firms, which “don’t want to deal with all these small plants,” and a “virtual consolidation of ethanol processing” is taking place. (ADM didn’t respond to multiple requests for comment for this story.)
New biorefinery developments are trending away from farmer ownership. In 1999, farmers owned all new plants being constructed, but by 2006 “they owned just 19% of the 1.7 billion gallons that will flow from 29 new plants going up or expanding,” according to Successful Farming magazine.
“You have some of the same players as in the food sector, Cargill and ADM, whose interest is in buying low and selling high,” points out George Boody, executive director of the Minnesota-based Land Stewardship Project, who wants to ensure that biofuels are grown sustainably. “Massive production of a few crops is the best way to get there, and that typically doesn’t bode well for small to mid-sized farmers because the margins get too tight and the acreage requirements grow and grow.”
Farming expert and author Marty Strange, a onetime director of the Center for Rural Affairs, says ethanol’s growth, like the rest of agricultural industrialization, brings little hope for smaller producers. “There’s no question that large-scale ethanol production depends on large-scale grain production. The small-scale diversified grain farmer is not what the ethanol industry relies on.”
Another dilemma: By edging out diversified farming, large-scale corn mono-cropping could weaken local food security, requiring more long-distance transport of foods (already averaging roughly 1,800 miles per item) -- thus more diesel pollution from the trucks that haul foodstuffs. Meanwhile, EPA efforts to repair the Gulf of Mexico’s 10,000-square-mile hypoxic zone, a massive oxygen-killing algae bloom created in good part by runoff from fertilizers and pesticides applied to corn and other grain crops, may call for less corn -- not more. Likewise, some advocates emphasize the need for more localized ethanol (and biodiesel) production, to support farmers and avoid the ironies of cross-country shipping of renewable fuels.
These economic and ecological tensions are generating increased collaboration between sustainable farming and clean-energy advocates. Jim Kleinschmit, rural communities program director for the Institute for Agriculture and Trade Policy, cites a growing concern that biofuels “be produced in a way that’s sustainable for the landscape, for the farmer’s pocketbook, and for the community.” Patrick Mazza and others say that ethanol and other biomass energy can be produced in a way that sustains farmers and the environment, if policy incentives are designed to promote both.
An array of ideas are afloat to encourage a more sustainable biofuels expansion: a diversified renewable energy policy that, rather than expanding corn crops, promotes more wind power and cellulosic energy from switchgrass and crop residues (which may favor localized, small-scale production); a federal version of Minnesota’s model, creating targeted incentives for farmer co-ops; and increased research spending by the USDA and Department of Energy to develop smaller-scale biofuels processing plants. Negotiations for the 2007 federal farm bill, already simmering, will feature a battle between agribusiness’ push for monocropping of cheap commodities, and family farm groups’ efforts to raise crop prices and rein in corporate control.
Iowa corn and soybean farmer George Naylor, president of the National Family Farm Coalition, warns that without proper supports, intense pressures for cheap energy will further imperil farmers’ frayed pocketbooks. “It’s an absolute must that there be public policy to make sure that the environment is taken into account, how land is being used, and whether family farmers benefit at all from it.” Such policy, says Naylor, must incorporate the intertwined concerns of small farmers, sustainable agriculture, and clean energy -- “so it isn’t just a matter of everyone going out and plowing the hell out of the countryside thinking there’s going to be a pot of gold at the end of the rainbow.”
Christopher D. Cook’s writings have appeared in Harper’s, The Economist, the Christian Science Monitor and elsewhere. He is the author of Diet for a Dead Planet: Big Business and the Coming Food Crisis (New Press).
© 2006 The American Prospect
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