Thursday 9 May 2013

Iowa - Corn and Ethanol Capital of the World

(The following article appeared in the Irish Farmers Journal. My trip to Iowa was funded by a US State Department programme run out of the Boston College Irish Institute)

Corn Silos at Lincolnway Energy
Much of Iowa is covered in corn. Apart from corn, Iowa’s most famous exports are John Wayne and President Herbert Hoover. This predominantly farm state is very different to other parts of the US. Like farmers in most places, they tend towards a long-term and conservative view on life, business and politics which is a world away from the rollercoaster ride approach to life in places like Silicon Valley.

The fortunes of Iowa are so linked to corn (and now ethanol) that the local land tax is based on something called the CSR, the Corn Suitability Ratio of your farm. The existence of a land tax was a (somewhat unpleasant) surprise to us, and seems to be a well accepted principle. Public coffers are now heavily dependent on land values and by extension corn profitability. The land tax has promoted farm consolidation and encouraged productive use of land. The average farm size is 333 acres, but about 65% of farmed land is conacre, so in practice farm units are much larger.

2012 was a poor year for corn production with severe droughts, but Iowa with 1.9 billion bushels remained the biggest corn state in the US, with Illinois a distant second. In times past a lot of corn was exported by barge or by rail to feed lots in Texas or poultry lots in Arkansas, but these days about half the crop is converted into ethanol and distillers grains. There has been an increase in local cattle and hog production which has grown the market for in-state use of wet and dry distillers grains.

Monty Shaw CEO of Iowa RFA
We had the privilege to meet Monty Shaw, Executive Director of the Iowa Renewable Fuel Association (IRFA). Monty is a forthright character with informed opinions on farming and the biofuels sector rooted in common sense. He describes himself as a farm-kid, though he has worked in Washington for the ethanol lobby for several years and now runs a well-organised and funded ethanol lobby group in Iowa. Iowa accounts for 26% of US bioethanol production across 40 factories based in this sparsely populated state of just 3 million people. The majority of these factories are less than 10 years old. One plant, Plymouth energy LLC operates near Sioux City, Iowa backed by an Irish management team and investors. The CEO of the company Eamonn Byrne, is also a board member of the IRFA.

A few choice “Montyisms” on farming and biofuels are shared with you here. Responding to several environmental questions he stated “Farmers, believe it or not, are generally aligned with environmental objectives. Things that force you to improve yields and reduce inputs generally improve the bottom line.”

“No-one gives a hoot about greenhouse gases from nitrogen application but it is a huge input cost so there’s a big imperative to reduce it.” There is a huge challenge to resolve the nitrogen run-off from crop fertilisers. The capital of Iowa, Des Moines, is home to the worlds largest water denitrification plant. The Missouri and Missisipi rivers flank the East and West boundaries of Iowa, and carry mountains of soil, nitrogen and other nutrients over 1,000 miles down to the Gulf of Mexico. This creates a dead zone which now extends out into the ocean. There is very heavy regulatory pressure coming on Iowa and other farm states to clean up – they have been served notice by the EPA to self-regulate or face radical federal measures to address this water quality issue.

There is also a great need to conserve soil and soil quality. Iowa is blessed in some parts with 30 feet of glacial topsoil, but soil quality is under threat. The clear message from Monty here is to maintain farm livelihoods and the prospects for the environment improve “Economic despair causes bad farm stewardship.”

In Iowa, as is the case around the world, farm commodities provide a fickle income and a boom-bust type commodity production cycle. High prices tend to accelerate that cycle. As Monty put it “(Iowa) farmers have a habit of producing ourselves out of prosperity and history shows this will happen again.” Most Iowa farmers take out crop insurance, which is a government-backed scheme to guarantee a yield equivalent to the previous 5-year average. It can be taken out on some or all of your production, and guarantees yield, but not price. Farmers will typically enter into forward supply agreements to control price risks. One typical 3,000 ac farmer in Iowa informed us they use a marketing consultant to advise on grain sales.

When asked about the food vs fuel debate we heard “There is a big urban rural divide among our politicians. City folk forget where their food comes from… Our intern thought corn came out of a can until we hired him.” This is a worldwide issue where consumers become more distant from farmers. In a democratic political system that uses headcount as the basis for political representation, there is a real risk of marginalisation of the agricultural community.

The US senate has a significant role in supporting agriculture and biofuels. Each state gets 2 Senators regardless of population, so a low-population state like Iowa gets a strong voice in the upper house, and generally Iowan Senators are strong supporters of the agriculture industry, and now also the ethanol industry. It is perhaps unsurprising that the US Secretary of Agriculture Tom Vilsack is a former Iowa State Senator and former Governor of Iowa.

Ethanol has been blamed for higher food prices. According to the IRFA the ethanol sector are a convenient scapegoat when justifying grocery price increases to consumers. The ethanol industry response is that high oil prices, packaging and marketing are behind food price increases. In Monty’s words “We pay more for the ink to print a rooster on a box of corn flakes than a farmer gets for the corn inside.”

It is a bit of a tall story to say that half the corn in the USA is going into ethanol factories. While strictly speaking this is the case, 40% of the corn comes out the other end as distillers grains and goes straight back into the food chain as animal feed.

A key message from Monty to actors involved in the biofuels sector in Ireland is “The oil companies are both our customers and our competitors. We have been too nice; they do not want us eating their lunch.” The US petroleum industry is blamed by the ethanol sector for the abolition of ethanol tax credits which ran from 1978 to 2011.

On the issue of GMO, Monty opined “Thank God you guys ignore GMO. I’d hate for us to be competing with Ukraine if they used GMO.” Needless to say, GMO is widely adopted in corn growing in Iowa. The main varieties are round-up ready plants and corn-bore resistant plants.