Live by government handout, die by government's hand

An excellent article in the Business Secition of the Pioneer Press today -- "Biofuel imports anger farmers."

A ship loaded with South American biodiesel pulled into a Florida port this month, and immediately qualified for a new U.S. biodiesel tax break. For the homegrown biofuels industry, it was a shocking notice that their domestic market had gone global.

The American Soybean Association expressed outrage. Angry farm-state politicians vowed to rewrite tax law. And it stunned soybean farmers, who dreamed that biodiesel would become the next ethanol — a corn-fed economic lifeline across Minnesota and beyond, which has turned crops into homegrown fuel, rural jobs and farmer profits.

Ethanol, too, is confronting import challenges. Latin American nations reportedly are ramping up ethanol production for possible export. Suddenly, U.S. farmers are nervous, just when it seemed that the promised land for biofuels was in sight.

"Why would we want to trade our farmers, our jobs, our communities, our tax dollars and our energy security for another dependence on foreign ethanol or biofuels?" said Minnesota Farmers Union President Doug Peterson.

Well, Doug, I'm tempted to say he that lives by government handout will die by government's hand.

Ethanol and biodiesel are industries that provide products at artificially low prices due to government subsidy into a market of artificial demand created by government mandate. Taxpayers have been picking up the tab for years while politicians fool farmers into thinking that the subsidies are all about them.

The issue is passionately felt in rural Minnesota, a state so deeply invested in farm-based fuels that industry leaders jokingly call it "the Holy Land." Minnesota has more ethanol plants, more farmer-investors, produces more biodiesel and buys more biodiesel than any other state.

This autumn, the future of farm fuels looked white-hot: Crude oil prices soared, corn and soybeans were cheap and abundant, a lucrative new tax credit for biodiesel became law, and the polluting additive MTBE continued its phase-out, further helping ethanol sales. Moreover, Congress passed a new law requiring a big increase in ethanol use.

It didn't take long for the biggest players in agribusiness to see opportunity and jump in, first Archer Daniels Midland, then Cargill, then CHS. But farmer groups were excited, too — so many, in fact, that Joe Jobe of the National Biodiesel Board said this month that he'd received "dozens, if not hundreds, of calls everyday saying we want to build a biodiesel plant."

Then came the competition: biodiesel from Ecuador, made from palm oil, not soybeans. EarthFirst Americas, the U.S. importer, intends to import 45 million gallons in 2006, and more than 100 million the following year, exceeding the 75 million gallons the entire U.S. biodiesel industry will produce in 2005.

Most galling to soybean growers, the Internal Revenue Service ruled that the Ecuadorian biodiesel qualifies for the new $1 a gallon biodiesel credit just passed by Congress. That means the U.S. biodiesel market is wide open to all comers.

Gosh, who’d a thunk it? Apparently not the politicians using biofuels as an election platform or the university elite.

"There's no protection there, apparently," warned U.S. Rep. Collin Peterson, D-Minn. "What started last week with Ecuador, I think we're going to see more of that."

Gary Wertish, agricultural aide to U.S. Sen. Mark Dayton, D-Minn., said that Dayton is among lawmakers who think the IRS ruling is wrong.

"One of the reasons the energy bill was passed was to lessen our dependence on foreign oil," Wertish said. "It wouldn't be the intent of Congress to apply tax credits for foreign-based biodiesel."

Vern Eidman, a University of Minnesota economist who specializes in biofuels, expected that biodiesel's moment had finally arrived. Then he heard of the Ecuadorian shipments.

"While it's hard to argue against competition, this may be a lot of competition to go up against, particularly if their oils are much lower in price than soybean oil," he said.

That last statement is quite revealing coming from an economist -- competition is good but not too much competition. More concern from Congressman Peterson.

Peterson, the congressman, sees a second threat, this one to the ethanol industry. On his recent travels through Central America, Peterson was concerned to see or hear about dehydrating plants under construction, designed to remove water from Brazilian ethanol.

Under trade rules, watery Brazilian ethanol shipped to the United States must pay a hefty tax. But the if water is removed in Central America, a substantial amount of ethanol can then be imported to the United States with no import tax. Up to 7 percent of U.S. production, or about 280 million gallons next year, could arrive tax-free.

Cargill has dabbled in this practice to a small degree, routing Brazilian ethanol through a plant in El Salvador, to the ire of U.S. farm groups. But with the passage of the Central American Free Trade Agreement, or CAFTA, Peterson sees evidence of someone investing on a much larger scale.

So what have we here? After decades of subsidizing biofuels, non-farming taxpayers might actually see some benefit from competitive pressure, a viable biofuel market that no longer needs to be subsidized, and the battle cry is for government to shut it down.

“The threat haunts some farm groups, which have seen ethanol deliver profits, jobs and rural development. At the Minnesota Farmers Union's recent annual meeting, union President Peterson told delegates: "Stop foreign ethanol and biofuels, and stand up for energy security, stand up for food security, stand up for rural America, and stand up for rural Minnesota."

As they say, no one ever lost an election by creating a crisis and blaming it on foreigners.

Category: National Politics, Ethanol, Biodiesel, Energy Policy, Free Trade, Tax Policy, Local Politics