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How We are Losing the Battle for Our Independent Fuel, Food and Jobs

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With all of the corporate bailouts and economic disasters our country is facing at present, it really is easy to welcome the wallet-relief provided by currently low transportation and heating fuel prices. In some places around the country today we are paying $1.89 a gallon for gas (or even less). It isn't comfortable to consider that the relatively calm waters international oil prices present could be covering an insidious undertow that is quietly dragging our renewable and Alcohol Fuel industry down to the OPEC equivalent of Davey Jones's Locker.

It is important to point out that with that short-term windfall comes the ominous realization that nearly 20% of our alcohol fuel producing industry may be bankrupted before the Obama administration is able to begin work on its renewable energy programs. The fact is, many investor-backed alcohol plants currently producing in the US may be bankrupted by April 2009. Worse still, it is very likely that 40 of the nearly 200 alcohol fuel plants we have working now will be victims of what I refer to as Big Oil's slash, burn, and buy strategy to collapse, consume and control our fledgling alcohol fuel industry.

The current poster child for this tragedy is VeraSun. Declaring bankruptcy recently in a Federal Court in Delaware, VeraSun represent a considerable failure for the alcohol fuel industry having fallen from the vanguard of ethanol plants funded by venture capital. Its collapse is having a rip-tide effect through the investment (and sadly) the farming community as well. Once a mighty force for alcohol expansion VeraSun is now reduced in value to pennies on the dollar.

How did this happen? What is the sleight of hand Big Oil is using to lull us to sleep at the wheel, while it methodically implements the conquest and control of America's independent and sustainable energy future?

Here is the answer. Oil companies have been gaming the commodities futures trading system, artificially inflating the price of corn by placing ungrounded high bids for future corn crops. At the same time it drives the future cost for corn contracts up, Big Oil is depressing the price of gasoline and heat fuel across all markets, placing additional priced pressure on alcohol fuel producers. The impact of artificially high corn prices is that plants like VeraSun (that aren't built and supported by farmer-owners, but rather by capital investors) have to pay high prices to compete with Big Oil to buy corn and make fuel. Meanwhile, the futures price of alcohol was driven down by Big Oil's fuel monopoly -- easy since they buy over 99% of alcohol fuel produced.

Weeks ago I predicted that Big Oil would take advantage of the chaos of the changing administration to crush and buy up alcohol plants. This week Verasun accepted an offer from oil giant Valero for several of its plants. And mysteriously the bankruptcy court is fast tracking approval to sell the rest of Verasun's plants which would not be in the best interest of the debtors. Big Oil recently spent a billion dollars conducting a fictitious Food vs. Fuel campaign, demonizing alcohol fuel as immoral, setting the stage for devaluation of $6 billion worth of alcohol plants by more than 90%. So just when the alcohol industry needs a modest amount of support in the millions, not billions of dollars to withstand the predatory practices of Big Oil it cannot find any friends. Ethanol's unjustified vilification has made it politically nearly impossible for anyone in government to align themselves with alcohol and offer to provide a financial backstop to prevent the industry from being swallowed by oily competitors.

Although it is criminal that Big Oil can drive, in cold blood, VeraSun and some other independent distillery companies into bankruptcy, the real losers will be our farmers. While oil companies bought futures contracts for corn at $6 a bushel, farmers were subjected to a quadrupling of prices for oil-based crop inputs such as fertilizer. Its like big oil offering them candy contracts with one hand while pickpocketing them with the other.
With the Federal court ruling in the VeraSun bankruptcy a legal precedent has been set that now allows buyers of bankrupt plants to reneg on futures contract commitments for corn purchases.

For the first time ever for any company, there may be an escape from paying for the futures contracts . The problem with this is that farmers have of course already borrowed money (based on futures pricing) to pay for higher (big oil) fertilizer/chemical costs in producing the supposedly higher-priced corn. Unlike the plant owners, they won't get to avoid their debts and there is a real chance that Big Oil will not only buy up the alcohol plants, but also reject the futures contracts, bankrupt the farmers, and then be able to buy their land. Oil companies will for the first time have control of food and fuel from seed through fuel pump.
If the oil companies gain control of even a quarter of the alcohol production infrastructure and land for the crops, there will be no end to the disruption they can cause in markets, they could even potentially bankrupt the rest of the industry. If you think that it's a nightmare that Big Oil controls our energy, think what life would be like if it controlled our land and food, as well.

After watching banks and insurance companies drain our treasury with"bailout" for those who criminally mismanaged their companies, helping the alcohol industry is quite different. These companies were targeted by a massive enemy and driven into their demise even though they were basically well managed. So these companies deserve our support where Wall Street bankers deserve prison sentences. However, as I have recommended for the Auto Industry bailout, there should be conditions on this money. While a number of initiatives should be addressed to ensure the Alcohol Fuel Industry's long-term growth, implementing these bailout conditions in the short term will make the ethanol business more secure and less likely to be disrupted by Big Oil:

• All alcohol fuel plants should be required to install the equipment necessary to handle non-corn energy crops.

• By 2010 plants should be required to diversify their crop inputs, limiting corn to 50% of the total. This would insulate them from further manipulation by oil companies and start the country, especially the Midwest, on the path of sustainable agriculture.

• By 2011 alcohol plant energy should come from at least 90% renewable fuel, not fossil fuels. Corn Plus has already converted its plant to run on biomass, reporting a 6:1 energy return compared to the usual 1.5:1 of coal-based alcohol fuel plants.

• The bailout should include loans to provide energy to alcohol fuel plants using biomass-fired combined-heat-and-electricity facilities. This would reduce alcohol price volatility, since alcohol production would largely be decoupled from the prices of oil, coal, and natural gas. Surplus electricity would be sold to the grid further stabilizing plant finances.

• Provide tax incentives for farmers to use alcohol fuel plant byproducts as fertilizer instead of oil based fertilizers to reduce our dependence on fossil fuels and help reverse climate change. Most plants could help their farmers eliminate all fossil fuel fertilizers with rich by-products from the alcohol plant.

Even though I am an advocate for smaller alcohol fuel plants for many reasons (security, local economy strength, improving soil fertility true energy independence among others), the larger plants need to be protected for the health of the industry and the United States. Without an effective alcohol industry to compete with Big Oil, the sky would be the limit on gasoline prices.

I have already gone on record predicting that we can expect gas prices to rocket by mid-2009. I have also stated that there will be a concerted effort to blame the new administration for this occurrence. This will happen because oil companies and OPEC are afraid that President Obama will carry out his campaign promises to reduce oil imports and address climate change. It's the reason why oil prices are being kept low now so as to not draw the attention of government while the new President has the mandate of the people for change.

There is already a Big Oil campaign going on to portray the oil companies as back in control of energy prices that somehow got out of control last summer due to "speculators." You might have caught the 60 Minutes infomercial they ran for OPEC and the Saudi family recently, (wow take a guess at what that cost to purchase and produce). Big Oil is already floating articles that say that putting money into alternative fuels will be a waste of taxpayer dollars and will raise rather than lower the price of auto fuel. Expect this chorus to become a propaganda flood during the next 60 to 90 days with the aim of discouraging Congress from doing anything substantial to cut our oil use via any alternatives not controlled by Big Oil (oil shale, tar sands, coal-to-gas).

Once the first flush of legislation is introduced, it will be autumn before another major bill could be introduced to interfere with the oil companies. They will hope to have the ethanol industry and enough legislators bought up by then.

But until the new administration can put together a rational approach to reducing fossil fuels we need to stop the oil companies from extending their monopoly to alcohol fuel. Decades ago we had to break up the oil companies to end their monopoly and restore competitiveness to the fuel marketplace. Right now alcohol fuel is the only competition for big oil and it's the one the fear the most since they don't control the land or the plants, yet. But give them that control and they will once again have complete control of fuel and the prices they charge us for it. Quite frankly I would rather have 650,000 farmers making the profit from my fuel purchases than a handful of oil companies. President Obama needs to make it clear to big oil that such anti-competitive alcohol plant sales will not be allowed while he is formulating his policy, and the Federal Trade Commission should not permit a fuel monopoly to be created to the detriment of the American people and farmers in particular.

What you can do now!

Join the Famrers, Contractors, Educators, Scientists and Activists everywhere. Contact your Congressional representatives, the Department of Justice, Antitrust Division and the Federal Trade Commission, Bureau of Competition and express your concern regarding the Valero acquisition of Verasun. We must mandate protectionary and regulatory programs for the formation of a truly independent renewable energy and fuel producers market. (Note: email is not secure. Mark confidential information "Confidential" and send it via postal mail).

David Blume is the Executive Director of the International Institute for Ecological Agriculture, (I.I.E.A.). He is a globally renowned permaculture and alcohol fuel expert and is author of the Amazon best selling book Alcohol Can Be A Gas (www.alcoholcanbeagas.com). Mr. Blume is the leading advocate for alcohol fuel and the role of the American farmer in developing a truly sustainable energy and food policy for the post-oil era. For more information on David Blume and his coming talks contact Tom Harvey email him here.