Ethanol Promoter Understands Economic Engines
“Money is the mother’s milk of politics,” the late Jesse Unruh, California’s powerful Assembly speaker, used to say.
And if you want to see how right he was, take a look at the U.S. Environmental Protection Agency’s recent ruling that oxygen compounds from renewable sources must be added to gasoline next year in Los Angeles and other smoggy cities, including New York, Chicago, Houston and Philadelphia.
The ruling means, in effect, that ethanol--an alcohol fuel derived from corn--will be a gasoline additive beginning next year, opening up a new market for 250 million bushels of corn, or 3% of the U.S. corn crop.
It also will mean a 3-to-5-cents-a-gallon rise in gasoline prices, despite a tax exemption for ethanol.
Howls of protest greeted the EPA’s June 30 ruling. Environmentalists sneered at ethanol’s ability to clean the air. The oil industry complained that methanol from natural gas was not mandated for use. And skeptics everywhere smiled at the politics of the Clinton Administration buying farm votes by supporting a corn-based fuel.
But beyond the usual arguments and half-truths from Washington, ethanol offered an even better story of how the U.S. economy really functions. It’s a pertinent story whether you are in business or an investor or simply an interested citizen and taxpayer.
There is no better weekend to think about such matters, because President Clinton and the leaders of the Group of Seven industrialized nations, plus Russia’s Boris Yeltsin, are meeting in Naples, Italy, arguing over charts and graphs about how to improve the U.S. economy.
They’re wasting their time. The U.S. economy doesn’t run on charts and graphs or economic theories, but on the visions and actions of energetic human beings, who pursue ambitious goals with single-minded intensity--and considerable help from government.
Behind ethanol’s growing place in U.S. energy stands Dwayne Andreas, 76, longtime friend of U.S. Presidents and chairman of Archer Daniels Midland, a $10-billion-a-year grain-processing company.
ADM produces more than 60% of the nation’s ethanol, and Andreas has made a career of promoting its use. It was noted in newspaper stories last week that he and his company have become generous contributors to the Democratic Party, the implication being that ready cash got results in the EPA ruling.
But it takes more than a couple of cash donations to make national policy. It takes work and clout--and cash donations. Ethanol got the nod because it is derived from corn, and therefore has a strong farm vote behind it--and because Andreas persuaded the Bush Administration, to which he was also a major financial contributor, to give ethanol a waiver making it acceptable under the Clean Air Act.
Ethanol’s credentials are ambiguous. As an alcohol, ethanol evaporates more quickly than petroleum fuels, so environmentalists say it adds to air quality problems. But it also alleviates them by adding oxygen to gasoline, thus making combustion more complete and reducing carbon monoxide emissions.
That’s why Denver uses ethanol in 70% of its gasoline in winter, says Barbara Charnes, head of Coloradans for Clean Air. “It has reduced carbon monoxide dramatically,” she says.
Scientifically, methanol from natural gas would also reduce carbon monoxide, but politically, natural gas doesn’t have scores of farm state congressional votes or Dwayne Andreas behind it. Nor does it arouse Midwestern excitement about new business.
“Ethanol could create a whole new industry,” says William Biederman, vice president of Allendale Inc., an investment firm in Crystal Lake, Ill. “We’ve had visitors come through here from Taiwan, Japan and Mexico, very interested in using grain to make fuel.”
Amid enthusiasm, the difficulties for ethanol should not be overlooked. Its exemption from excise taxes on gasoline will come under attack. Court challenges from oil or environmental interests are likely.
But that’s to be expected among the contending forces that make up the U.S. economy. And ethanol, as the first of many fuels from renewable sources, will probably hold its own--Andreas knows his way around courtrooms too.
It’s not the first time Andreas has created a business. He pushed fructose corn syrup as a sweetener for soft drinks in the 1970s--a good business for ADM because its plants produce corn syrup in summer when drink sales are high and ethanol in winter when fuel needs are greater.
But before he could sell syrup to soft drink makers, Andreas had to lobby in Washington to keep quotas on cheap, imported sugar. He did so successfully, of course.
Andreas--who left Wheaton College in Depression-era 1936 to go to work in agribusiness and has amassed a fortune of more than $300 million in the stock of ADM--goes away back with politicians.
Born in Minnesota, he was a good friend of the late Hubert H. Humphrey and was also a friend of the late President Richard Nixon--as well as every President back to Harry Truman. (Andreas recently gave $1 million to the Center for Peace and Freedom at the Nixon Library in Yorba Linda.)
But how do you become a friend of Presidents while making a fortune and building an industry? You work at it. Andreas was a pioneer in pushing grain sales to the Soviet Union in the 1970s, creating an export business that has benefited the whole U.S. farm sector. He remains a leader in helping agriculture in the former Soviet lands.
He has pushed the use of soy-based protein foods to alleviate hunger in India, and marketed Harvest Burgers to cholesterol-conscious Americans.
“He has been a force for good in agriculture,” says analyst George Dahlman of Piper, Jaffray & Hopwood, a Minneapolis investment firm. His critics put it differently, if no less admiringly: “You have to respect Andreas’ ability to milk the system,” says one.
More accurate to say that Andreas has contributed to the U.S. economic system, and the system has rewarded him. And while it may not always be rational or theoretically pure, that’s how the U.S. economy works. Jess Unruh and Dwayne Andreas understood that without becoming cynical, and so should we.
