Agribusiness Group Forms To Protect Ethanol Subsidies

By DOUG CAMERONJuly 25, 2008;

A group of U.S. agribusiness companies including Archer Daniels Midland Co. are uniting in the intensifying food-versus-fuel debate, forming an alliance to promote the idea that technology can ease global supply shortages.
The Alliance for Abundant Food and Energy -- which includes seed makers Monsanto Co. and DuPont Co., as well as farm-gear maker Deere & Co. -- wants to spread its belief that renewable fuels won't cut into food supplies if new technologies, such as genetically modified crops, are used to their fullest. The group is also working hard to protect government subsidies for ethanol production.
ADM, Monsanto and others have seen their own profits soar in recent years, as booming demand for agricultural products in emerging markets has pushed up commodity prices and spurred additional production.
The alliance faces tough opposition, notably from the food producers in the U.S. that are lobbying to get ethanol subsidies scrapped or reduced.
Tyson Food Inc. Chief Executive Dick Bond attributes rising inflation in U.S. food prices to competition for corn from ethanol producers, as well as the rising global demand for protein that pushed corn and soybean prices to record levels in recent weeks. Tyson says its profits have been eroded by higher feed costs for its poultry, pork and beef processing business.
"Diverting corn to make ethanol doesn't make sense," Mr. Bond said in April. Tyson is expected to say more about the issue when it releases quarterly earnings Monday.
Echoing Mr. Bond's objections to the ethanol movement, the Grocery Manufacturers' Association says: "While improvements in global agriculture are vital, this work must not distract us from the fact that while we wait, millions of people will be pushed deeper into hunger and poverty because we are diverting more and more food and feed supplies to producing ethanol."
Prices of corn, soybeans and other crops have reached record levels in recent weeks, and global stocks are at historic lows. However, one alliance member said there wasn't a supply problem. "From a production perspective, we have abundance," said Rob Fraley, Monsanto's chief technology officer. The issue is muddled by politics and "sensational headlines," Mr. Fraley said. "What's missing is an understanding of the science and the technology."
Mr. Fraley also dismissed concerns among critics of U.S. agricultural policy that productivity is slowing. "The rate of growth is positive," he said.
"[We want to] make the same sort of gains in processing efficiency as in agricultural productivity," added Todd Werpy, vice president of research at ADM.
Current U.S. renewable-fuel policy includes a 51-cent-a-gallon subsidy on corn-produced ethanol and a tariff on imports, mainly sugar-based ethanol from Brazil.
"My fear is that if the body politic and the general public turn their back on the first generation [of ethanol], we won't have a second generation," said J.B. Penn, chief economist at John Deere.
Write to Doug Cameron at doug.cameron@dowjones.com