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Where corn is king, a new fuel is prince

An ethanol boom lifts farmers and the sagging rural Midwest.

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For a fuel additive, it doesn't get more exciting this.

Ethanol is the darling of investors. Wall Street executives, West Coast venture capitalists, and even Bill Gates are investing in ethanol plants. The CEOs of the Big Three automakers have pledged to double their production of flex-fuel vehicles – which can run on either gasoline or ethanol – by 2010. And the Midwest, which grows most of the corn that gets turned into ethanol, is smiling.

The additive's boom not only represents an alternative to foreign oil, it is pumping big profits into dying rural areas and creating a burgeoning market for corn farmers.

The ethanol industry "is growing much more rapidly than anybody expected," says Dan Basse, president of AgResource, an agricultural research and forecasting firm in Chicago. "It's a gold rush mentality."

All of which, some critics say, could eventually strain the demand on corn and raise food prices – for a fuel that not everyone believes is even a cheaper or better alternative to traditional gasoline.

Reasons for the boom range from the mandated phaseout of a common additive (MTBE) to high oil prices and the current focus on renewable sources of energy. Last year, Congress included a provision in the Energy Policy Act that triples the amount of biofuel that must be mixed with gasoline by 2012. And President Bush further emphasized renewable fuels in his State of the Union address as a way to wean the US off foreign oil.

"I didn't expect the oil companies to convert to ethanol as fast as they have," says Allen Baker, an agricultural economist with the US Department of Agriculture.

Supply slow to catch up with demand

While demand is booming, supply has been slow to catch up, Mr. Baker adds. That's because of a transportation bottleneck. Ethanol can't be sent through existing pipelines, and the railroads weren't prepared to haul so much.


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