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Ethanol industry surging in US

Broadcast: 12/10/2007

Reporter: Kim Landers

In America's corn belt, farmers are beginning to reap a record harvest, thanks largely to surging
demand for ethanol.


VIRGINIA TRIOLI: In America's corn belt, farmers are beginning to reap a record harvest, thanks
largely to surging demand for ethanol. The flourishing ethanol industry has taken root in Iowa, the
nation's top corn-producing state. But as North America correspondent Kim Landers reports, the corn
based fuel may still only be able to replace a fraction of the petrol Americans consume.

KIM LANDERS: Ethanol plants are mushrooming across America's mid-west. Here in Iowa, there are 28
refineries making fuel out of corn. Across the US, there are 86 more. What was once a cottage
industry is now touted as one of modern agriculture's biggest success stories. To satisfy the
demand of this rapidly growing industry, American farmers have planted more than 90 million acres
of corn, the biggest crop since World War II. Nowhere is the boom more evident than in Iowa,
America's top corn-producing state.

RICH MALCOLM, CORN GROWER: There's more acres going on here every year, of corn and corn. That, I
think, is the big reason with the ethanol plants coming around here.

KIM LANDERS: Rich Malcolm is growing 465 acres of corn this year. He'll send it all to the local
ethanol plant.

RICH MALCOLM: The benefits has been the price that's it's done. It's brought the price up for us
all. That's what we're out here for. We all need to make money, and when we can get a better price
for it... Even sometimes it can be as much as seven or eight cents a bushel more than the other
elevators. So that's why you end up going there, is price.

KIM LANDERS: Rich Malcolm's corn comes to this ethanol plant in the town of Galva. It's called Quad
County Corn Processors. On any day, up to 50 trucks deliver their loads here. The corn is weighed
and checked that the moisture levels aren't too high before it's unloaded into huge storage bins.
The plant uses about 11 million bushels of Iowa corn a year.

Quad County is run as a cooperative. More than 400 farmers from across north-west Iowa pooled their
money to build the plant, which produced its first batch of ethanol in early 2002.

MIKE JERKE, QUAD COUNTY CORN PROCESSOR: We're a society that has yoked itself to liquid fuel. We
need that to make our economy go. Until that changes, we need to do the best job we can of
providing a fuel that's sustainable and has as little possible impact on the environment.

KIM LANDERS: Whether ethanol can help wean America off imported oil is doubtful. The US appetite
for fuel is enormous. The country uses about 150 billion gallons a year. While ethanol production
has doubled in the past three years, it still only reached five billion gallons last year, a long
way short of curbing the nation's lust for fuel.

puzzle, but I do not believe that it is the key to breaking America's addiction to oil. It really,
that really is going to require a combination of demand side measures, namely getting cars that
have better fuel economy. It's going to be developing some other sources of energy and it can be a
contributor but it's not going to be the key part of the solution, I believe.

KIM LANDERS: The operators of the Quad County plant say every little bit helps. Operating around
the clock, their refinery produces about 80,000 gallons of ethanol a day, almost 30 million gallons
a year. It's a process that takes almost 60 hours.

The corn is first ground into flour, mixed water and enzymes and cooked at high temperatures. It's
fermented and then the ethanol is separated from the remaining mash before being concentrate into
200 proof. It's then pumped into trucks which take it all over the country. In a state that hosts
the first presidential contest, it's hard to find anyone who's not fired up over ethanol made from
corn, but this ethanol-induced euphoria is not a remedy for America's addiction to foreign oil or
its massive greenhouse gas emissions. While ethanol production has skyrocketed, some economists
argue it's being artificially buoyed by about $6 billion in tax breaks and subsidies. Dr Robert
Westcott was Bill Clinton's economic advisor. He now heads an economic and financial research firm
in Washington.

DR ROBERT WESTCOTT: First, you have the blenders credit. And so when an oil company blends in 10
per cent ethanol, which they're doing now, they get a 50 cent a gallon credit, and so that's a big
subsidy for ethanol. The other key government support for ethanol is a tariff of 50 cents a gallon
on, say, Brazilian or any other ethanol coming to the US.

KIM LANDERS: But there's another side to the subsidy debate.

MIKE JERKE: When you look at what ethanol has done to raise the price of corn across the board for
the farmers, those subsidy payments quit so it's a win for the taxpayer.

KIM LANDERS: It's also a win for the tiny town of Galva. Just 350 people live here, there's no
traffic lights, just a stop sign. But thanks to the ethanol plant and the dozens of jobs it's
created, Galva is being rejuvenated. It's experiencing its biggest housing boom in 30 years, with
three new homes being built.

Yet while the ethanol industry is fuelling hopes of a new future for rural America, there are
downsides too. Ethanol may not be such a green substitute for petrol. About three gallons of water
are needed for every gallon of ethanol made, a process that also relies on fossil fuels like coal,
gas or oil. Washington may have a love affair with ethanol, but this burgeoning industry still may
not deliver a sustainable antidote to America's reliance on foreign oil.

Kim Landers, Lateline.