CNNMoney.com
10-31-06
McCain's farm flip
The senator has been a critic of ethanol. That doesn't play in Iowa. So the
Straight Talk Express has taken a detour.
FORTUNE Magazine
By Jon Birger, Fortune senior writer
(Fortune Magazine) -- John McCain has a problem with alcohol - ethyl alcohol, to
be precise.
Ethyl alcohol is the fuel better known as ethanol, and over the years, the Arizona
senator has made a habit of ripping ethanol subsidies as corporate pork for
agribusinesses like Archer Daniels Midland (Charts).
McCain has argued that government support for ethanol actually raises gasoline
prices. He has claimed ethanol does nothing to make the U.S. more energy
independent. He has even questioned the science behind making fuel from corn contending that ethanol provides less energy than the fossil fuels consumed to
produce it.
Putting ethanol in the fast lane
Those may be reasonable positions for a senator from a nonfarm state like
Arizona. They may even fly for a presidential candidate running as a straightshooting maverick, as McCain did in 2000.
But for a front-runner - one presumably interested in getting his as-yetundeclared 2008 Republican presidential campaign off to a winning start opposing ethanol is political lunacy.
Iowa, home to the first-in-the-nation presidential caucus, is the biggest corngrowing state in the country, and in Iowa ethanol isn't just another campaign
issue. It's the cash cow, the golden goose and the fountain of economic youth all
wrapped up in one.
Mike "Heckuva Job" Brown would stand a better chance of winning an election in
New Orleans than an anti-ethanol candidate would of winning Iowa's caucus.
Ethanol saves a sleepy town
Spend a little time in the Hawkeye State, and it's apparent why. Everywhere you
go, sleepy little farm towns are being transformed. Marcus, a community in
northwestern Iowa, is a case in point.
A hamlet of 1,100 people surrounded by a sea of corn and soybeans, Marcus
was once a town in decline. Young people had to move out to find work, and
locals fretted that the national economy was leaving farm communities like theirs
behind. "Nothing was happening," says Marcus's affable mayor, Darrell Downs.
"We were at a standstill."
Today, Downs wheels more deals than many of his big-city peers. One morning
he's attending the ribbon-cutting of the new truck stop he helped get built. By
afternoon he's calling on prospective tenants for the town's new business park.
And in the evening he's off to a planning session for Soy Energy, a new biodiesel
plant expected to be built in town.
Downs says Marcus's revitalization started in 2003 with the opening of Little
Sioux Corn Processors, an ethanol plant owned and financed primarily by 650
local farmers and businesspeople, Downs among them. (ADM bought a minority
stake.)
With ethanol sales booming, the plant has paid some $10 million in dividends to
local investors this year - money Downs says is being spent locally on big-ticket
items like new cars and kitchens.
And it's not just the dividend checks pumping money into the Marcus microeconomy. Thirty-five jobs have been created at Little Sioux, and an expansion is
expected to add another dozen. All the new truck traffic has been a boon for the
new truck stop as well as for local auto mechanics.
The daily lunch crowd has doubled at The Marcus Bowl, the town's combination
burger joint-bowling alley, says manager Gary Husman. The town's first-ever
pharmacy just opened. Bob Leavitt, owner of Marcus Lumber, says sales at his
hardware store are up 15 percent.
And, best of all, Little Sioux has been such a good customer for local farmers'
corn that farmland prices in Cherokee County, where Marcus is situated, have
risen 35 percent this year, according to the Iowa Land Sales Report.
State-wide expansion
What's happening in Marcus echoes all across the state. Iowa's unemployment
rate fell to 3.4 percent in September from 4.5 percent a year earlier. In 2005,
business investment grew at the fourth-fastest rate in the country, according to
Ernst & Young's U.S. Investment Monitor. All told, Iowa boasted $1.8 billion in
new capital spending.
The money just keeps pouring in. Ernst & Young reports that another $3.1 billion
was invested in Iowa through the first nine months of 2006 - $200 million more
than New York, a state with six times Iowa's population.
ADM, for example, is spending $280 million on a bioplastics plant in Clinton and
$540 million on an expansion of its ethanol plant in Cedar Rapids. Overall, there
are now 25 ethanol plants operating in Iowa, according to the Iowa Corn Growers
Association, with another 22 either in construction or on the drawing board.
Against this backdrop, it's obvious why McCain's past ethanol opposition is such
an albatross. Fact is, criticizing ethanol is hard even for scientists these days.
At a recent BP-sponsored ethanol roundtable, University of California at Berkeley
engineering professor Tad Patzek - whose anti-ethanol research McCain has
invoked - so riled Roger Conway, the director of energy policy for the very proethanol U.S. Department of Agriculture, that Conway told the foreign-born Patzek
to "go back to Poland." (Conway denies making the remark, but four other
participants confirm he did, including pro-ethanol scientist Michael Wang of the
Argonne National Laboratory.)
McCain's about-face
For a politician like McCain, the stakes go far beyond a little name-calling. When
McCain ran for president in 1999 and 2000, he barely campaigned in Iowa,
knowing that his anti-ethanol stance wouldn't cut it in corn country.
Four years later, McCain hadn't changed his tune. "Ethanol is a product that
would not exist if Congress didn't create an artificial market for it. No one would
be willing to buy it," McCain said in November 2003. "Yet thanks to agricultural
subsidies and ethanol producer subsidies, it is now a very big business - tens of
billions of dollars that have enriched a handful of corporate interests - primarily
one big corporation, ADM. Ethanol does nothing to reduce fuel consumption,
nothing to increase our energy independence, nothing to improve air quality."
Even the most slippery politician would have a tough time wriggling away from a
statement as unequivocal as that one, yet McCain's Straight Talk Express has
been taking some audacious detours during recent trips to Iowa.
In a flip-flop so absurd it'll be a wonder if it doesn't get lampooned by late-night
comedians - not to mention opponents' negative ads - McCain is now proclaiming
himself a "strong" ethanol supporter.
"I support ethanol and I think it is a vital, a vital alternative energy source not only
because of our dependency on foreign oil but its greenhouse gas reduction
effects," he said in an August speech in Grinnell, Iowa, as reported by the
Associated Press.
"Well, at least now we know he's serious about running for president," quips
Brown University presidential politics expert Darrell West, upon being told of
McCain's ethanol about-face.
In Grinnell, McCain said he still opposes subsidies but indicated his attitude
softened after oil prices crossed $40 a barrel. There's just one problem: in June
2005 - when oil was $60 - McCain's office put out a press release warning that
the ethanol mandates in the 2005 energy bill would result in higher gasoline
prices for his constituents. (He was right, but lowans don't care.)
McCain didn't respond to requests for an interview. His office sent us a written
statement calling ethanol "a competitive alternative fuel for consumers." We
wanted to ask the senator whether the realities of Iowa politics forced him to
reconsider his ethanol opposition. We were also curious how much of a role two
new political advisors - Terry Nelson and David Roederer, both Iowa natives played in his shifting ethanol rhetoric.
Unfortunately, the most we could get out of McCain press secretary Melissa
Shuffield was that the senator hasn't made any decisions about 2008. She also
insisted that McCain's ethanol position hadn't changed, noting he remains
opposed to subsidies.
There's a word for someone who changes the way he talks about an issue, not
how he feels. It's "politician," and McCain's reputation is based on being Not That
Guy. Were the Iowa Caucus held today, polls say McCain could win.
Of course, most lowans aren't yet thinking about 2008, and at least one local
pundit believes McCain's new position on ethanol creates as many problems as it
solves. "The flip-flop is deadly," says Steffen Schmidt, host of the Dr. Politics
show on Iowa Public Radio and a political science professor at Iowa State
University. "It makes it so easy to undermine McCain's main claim to fame,
which is that he's a straight shooter."
Nevertheless, Schmidt thinks McCain was in a pickle no matter what he did.
lowans see gold in their fields, and they have little tolerance for anyone who
raises doubts about the economic or environmental merits of ethanol production.
"You can't trash ethanol and expect to win in Iowa," says Schmidt. "You can't
continue to say the same things McCain said - even if you believe they're true."