Ethanol's Growing List of Enemies

As demand for the alternative fuel drives corn prices up, an unlikely assortment of groups are uniting with the hopes of cutting government support

by Moira Herbst

Paul Hitch has spent his entire life raising cattle and hogs on a stretch of the Oklahoma panhandle he says is "flat as a billiard table." His great-grandfather started the ranch in 1884, before Oklahoma was a state, and now Hitch, 63, is preparing to pass the family business on to his two sons.

But he worries that they'll face mounting pressures in the industry, particularly because of the soaring price for corn, which the business depends on to feed the livestock. In the past year, corn prices have doubled as demand from ethanol producers has surged.

"This ethanol binge is insane," says Hitch, who's president-elect of the National Cattlemen's Beef Assn. (NCBA). "This talk about energy independence and wrapping yourself in the flag and singing God Bless America—all that's going to come at a severe cost to another part of the economy."

The ethanol movement is sprouting a vocal crop of critics. While politicians including President George W. Bush and farmers across the Midwest hope that the U.S. can win its energy independence by turning corn into fuel, Hitch and an unlikely assortment of allies are raising their voices in opposition. The effort is uniting ranchers and environmentalists, hog farmers and hippies, solar-power idealists and free-market pragmatists (see BW Online, 02/2/07, " Ethanol: Too Much Hype—and Corn").

They have different reasons for opposing ethanol. But their common contentions are that the focus on corn-based ethanol has been too hasty, and the government's active involvement—through subsidies for ethanol refiners and high tariffs to keep out alternatives like ethanol made from sugar—is likely to lead to chaos in other sectors of the economy.

"The government thinks it can pick a winner, but they should allow consumers to pick their own," says Demian Moore, senior analyst for the nonprofit Taxpayers for Common Sense. "Corn ethanol has failed to prove itself as a reliable alternative that can exist without huge subsidies."

Ethanol has plenty of support in Washington. Besides Bush's call for sharply boosting output during his State of the Union (see BusinessWeek.com, 1/24/07, "Salesman In Chief"), Hillary Clinton, senator from New York and Presidential contender, has reversed her previous position to support ethanol subsidies.

Barack Obama, another Democratic Presidential hopeful, is on board. Even John McCain, a vocal critic for years, is reconsidering his opposition as he tries to snare the Republican nomination. Archer Daniels Midland (ADM), the agribusiness giant and the largest ethanol producer, is a formidable lobbying force in the capitol, after having handed out millions of dollars in political contributions over the last three decades.

Abundant Crops

Yet while the influence of ethanol's enemies isn't great now, their cohesiveness, and their power, is growing. For two days earlier this month, the NCBA, the National Chicken Council, the National Turkey Federation, and the National Pork Producers' Council testified before Congress, calling for the end of corn ethanol subsidies.

Left-leaning economists such as Princeton University's Paul Krugman are joining free-market fundamentalists at the Cato Institute in pointing out the economic pitfalls of ethanol. And green groups worry that aggressive production of corn could have dire consequences for the environment, because of the heavy use of pesticides, fertilizer, and machinery that burns fossil fuels. "There's great concern," says Doug Koplow, who analyzes energy policy for Earth Track, a Boston consultancy.

The opposition groups haven't worked together before this year, but Hitch says the NCBA is now beginning to reach out to other groups in an effort to coordinate lobbying and other activities. On Mar. 16, representatives of the ranchers, chicken farmers, pork processors, and milk producers held a joint conference call to discuss strategies for addressing the ethanol issue. They agreed to form an ad hoc group, which has not been publicly announced, to launch an informational Web site and to work toward the inclusion of measures to eliminate domestic ethanol subsidies and tariffs on Brazilian ethanol in the Farm Bill expected later this year.

Ranchers and other opponents say they're determined to get the government to change its policies, however long it takes. "This ethanol thing is driving everybody half nuts," says Hitch. "As far as presenting a united front on this issue, we certainly can and will."