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Ethanol factories proliferating across U.S.

THE BALTIMORE SUN

Dozens of factories that turn corn into the gasoline substitute ethanol are sprouting up across the nation, from a brewery in Fulton, N.Y., to Savannah, Ga., Kansas and Oklahoma, wherever the grain can be grown or shipped.

Once considered the green dream of the environmentally aware, ethanol has gone mainstream: Agricultural giants are moving to control a vast new market, raising concerns over food prices and land use.

Even in the small town of Hereford, in the middle of the Texas Panhandle's cattle country and hundreds of miles from the agricultural heartland, two companies are rushing to build plants to turn corn into fuel.

The companies, White Energy and Panda Energy, are driven by a number of factors: generous government subsidies for turning corn into ethanol; surging demand for it as a gasoline supplement; and a potent blend of farm-state politics and the prospect of generating more than a 100 percent profit in less than two years.

As a result, Hereford, Texas, an isolated cattle town, has become one of dozens of flash points in the ethanol bonanza that is helping to reshape rural America's economic base.

Despite continuing doubts about whether ethanol provides an energy saving, much of the nation's heartland is in the middle of an explosion of the modern-day alchemy of turning corn into fuel. At least 39 ethanol plants are expected to be completed in the next nine to 12 months, projects that will push the United States past Brazil as the world's largest ethanol producer.

The new plants will produce 1.4 billion gallons a year, providing a 30 percent increase over current production of 4.6 billion gallons, according to Dan Basse, president of AgResource Co., an economic forecasting firm in Chicago. By 2008, analysts predict, ethanol output could reach 8 billion gallons a year.

For all its allure, though, there are hidden risks to the boom. Even as struggling local communities herald the expansion of this ethanol-industrial complex and politicians promote its use as a way to decrease America's energy dependence on foreign oil, the ethanol phenomenon is creating some unexpected jitters in crucial corners of farm country.

A few agricultural economists and food industry executives are quietly worrying that ethanol, at its current pace of development, could strain food supplies, raise costs for the livestock industry and force the use of marginal farmland in the search for ever more acres to plant corn.

"This is a bit like a gold rush," warned Warren R. Staley, the chief executive of Cargill, the multinational agricultural company based in Minnesota. "There are unintended consequences of this euphoria to expand ethanol production at this pace that people are not considering."

Staley has his own reasons to worry, because Cargill has a stake in keeping the price of corn low enough to supply its vast interests in processed food and livestock.

But many energy experts are questioning the benefits of ethanol to the nation's fuel supply. While it is a renewable, domestically produced fuel that reduces gasoline pollution, large amounts of oil or natural gas go into making ethanol from corn, leaving its net contribution to reducing the use of fossil fuels in doubt.

As one of the hottest investments around, however, few in farm country want to hear any complaints about the risks associated with ethanol. Archer Daniels Midland, the politically connected agricultural processing company in Decatur, Ill., and the industry leader that has been a longtime champion of transforming corn into a fuel blend, has enjoyed a doubling of its stock price and profits in the past year.

One ethanol producer has sold shares to the public, and two more are planning to do so. And the get-rich-quick atmosphere has drawn in a range of investors, including small farm cooperatives, hedge funds and even Bill Gates.

For all the interest in ethanol, however, it is doubtful whether it can serve as the energy savior President Bush has identified. He has called for biofuels - which account for 3 percent of total gasoline usage - to replace about 1.6 million barrels a day of oil imported from the Persian Gulf.

To fill that gap with corn-based ethanol alone, agricultural experts say, production would have to rise to more than 50 billion gallons a year; at least half the nation's farmland would need to be used to grow corn for fuel.

But that isn't stopping out-of-the-way towns looking for ways to pump life into local economies racked by population loss, farm consolidation and low prices from treating the rush into ethanol as a godsend.

"These projects are bringing 100 new jobs to our town," said Don Cumpton, Hereford's director of economic development. "It's not as if Dell computer's going to be setting up shop here. We'd be nuts to turn something like this down."

That the United States is using corn, among the more expensive crops to grow and harvest, to help meet the country's fuel needs is a testament to the politics underlying ethanol's 30-year rise to prominence. Brazilian farmers produce ethanol from sugar at a cost of about 30 percent less.

But in America's farm belt, politicians have backed the ethanol movement as a way to promote use of corn, the nation's most plentiful and heavily subsidized crop.

While farmers are seeing little of the huge profits that ethanol refiners such as Archer Daniels Midland are banking, many farmers are investing in ethanol plants through cooperatives or simply benefiting from the rising demand for corn. With Iowa home to the nation's first presidential caucuses every four years, just about every candidate who visits the state pays obeisance to ethanol.

"There is zero daylight" between Democrats and Republicans in the region, said Ken Cook, president of Environmental Working Group, a nonprofit research policy group in Washington, and a veteran observer of agricultural politics. "All incumbents and challengers in Midwestern farm country are by definition ethanolics."

The ethanol explosion began in the 1970s and 1980s, when ADM's chief executive, Dwayne O. Andreas, was a generous campaign contributor and well-known figure in the halls of Congress who helped push the idea of transforming corn into fuel.

Ethanol can be produced from any number of agricultural feed stocks, including corn and sugarcane, and someday, wheat and straw. But given the glut in corn, the early strategy of Andreas was to drum up interest in ethanol on the state level among corn farmers and persuade Washington to provide generous tax incentives.

But in 1990, when Congress mandated the use of a supplement in gasoline to help limit emissions, starting in the smoggiest cities, ADM lost out to the oil industry, which won the right to use the cheaper methyl tertiary butyl ether, or MTBE, derived from natural gas, to fill the 10 percent fuel requirement.

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