30 May 2007

The craze for maize

As a follow up to my previous post entitled: "Rising Corn Prices..."

The craze for maize
From The Economist print edition

Ethanol is rapidly transforming life in Iowa and the rest of the corn belt
YOU might think that the opening of a new ethanol facility in Nevada, Iowa—a town of 6,700 in the centre of the state—would be of interest mainly to the local farmers who supply the corn that the factory turns to car fuel. You would be wrong. Investors in the refinery include the person who delivers fuel to it, a couple of local parts-suppliers for John Deere (a big farm-equipment company) and the local school-bus driver, among 900 or so other small investors. Like many others in the corn belt, the Nevada refinery is seen as a way for the whole rural community to thrive by exploiting America's new craving for ethanol and the corn (maize) that is being used to make it.

Corn-based ethanol is neither cheap nor especially green: it requires a lot of energy to produce. Production has been boosted by economically-questionable help from state and federal governments, including subsidies, the promotion of mixing petrol with renewable fuels and a high tariff that keeps out foreign ethanol. The federal government offers ethanol producers a subsidy of 51 cents per gallon (13.5 cents per litre); and a growing number of states are pushing for wider use of E85, a fuel blend that is 85% ethanol and only 15% petrol. Since oil prices rose above $30 a barrel in 2004 (they are more than double that now), ethanol capacity has grown especially rapidly. And although the country is experimenting with other renewable plant-based fuels of varying feasibility, from biodiesel to (much greener) ethanol derived from trees, the biggest boom has been in corn-based ethanol.

California has helped to lead the way. When the state banned the use of methyl tertiary butyl ether (MTBE) as a fuel additive after 2003, everyone had to use ethanol instead to meet clean-air standards; and local refineries for the product began popping up to cash in on a state subsidy of 40 cents per gallon at the time.

Outside the Golden State, however, the states most eager to subsidise ethanol were those with golden fields of corn. Wallace Tyner, an agricultural economist at Purdue University, points out that states that had introduced subsidies early, such as Illinois, Iowa, Minnesota and Nebraska, were already building lots of ethanol factories before 2004, whereas corn-belt states without subsidies, such as Indiana and Ohio, did not do much until oil prices rose. Since then, rural areas across the region have been swept up in the ethanol craze, with new facilities sprouting all over corn country..."

Click the link above for the rest of the story and the maps...

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