In a Carbohydrate Economy, Ownership Matters
By David Morris
Almost 20 years ago I coined the term “carbohydrate economy” to describe an industrial system with two distinctive features
1. Carbohydrates replace hydrocarbons. We rely on vegetables to supply not only our stomachs but our factories.
2. Cultivators and their surrounding regions capture a significant portion of the revenue generated by converting plants into industrial products and fuels.
This system would entail a fundamental change in both the raw materials foundation of our industrial economy and in the ownership structure of our manufacturing sector.
Today, one of the twin pillars of a carbohydrate economy—replacing drilling with tilling—is rapidly gaining adherents and visibility. President Clinton has issued two executive orders to accelerate what the federal government is calling a “biobased economy.” Congress is about to appropriate hundreds of millions of dollars to fund that effort. The media are beginning to carry stories about companies making plastics from corn, lubricants from vegetable oils and car bodies from hemp and flax. This is a heartwarming and encouraging development.
But the second pillar of a carbohydrate economy—creating a structure that rewards farmers and farming communities—has largely been ignored. This is regrettable and potentially, a tragic squandering of an unprecedented historic opportunity. We are on the verge of endorsing, as a matter of national policy, the cultivation and harvesting of another 1 to 1.5 billion tons of plant matter that will serve as feedstock for U.S. industrial and fuel markets. We are talking about more than doubling the amount of plant matter currently used for all purposes—without making the economic security of farmers and farm communities a key focus.
Many policymakers believe that by simply expanding the market for plant matter, farmers will benefit. Some will. But we should keep in mind that in the last generation, expanded markets for agricultural products have benefited farmers only modestly, if at all.
There are two reasons why this is so. One is that productivity has increased as fast or faster than demand. Corn yields, for example, have more than tripled in the last generation. A record 10 billion bushels of corn may be harvested this year. Production and consumption rise while incomes decline. The price of corn, soybeans, wheat and other grains is near an all-time low. The other reason why farmer productivity has not translated into increased farmer income is that the food processing, manufacturing and retail sectors have become increasingly concentrated. Millions of farmers compete with one another to increase output and lower costs but sell into a market dominated by a handful of buyers. The result? Lower prices to the farmers, even though the retail price of food may rise.
One of the lessons learned from agricultural history is that the only way for the farmer to stay ahead is to move up the value-added ladder: that is, to gain some of the profits from processing the raw material into a higher-priced product.
In the last 15 years, with virtually no government assistance, more and more farmers have been learning this lesson. More than 150 farmer-owned manufacturing facilities, with a capital investment of more than $3 billion, have been established. A year ago a federation of state-based farmer-owned investment alliances was formed to accelerate this dynamic.
Most of these new farmer-owned manufacturing enterprises are the equivalent of biorefineries. Like oil refineries, they make products for multiple markets. Most supply food products but even when their primary purpose is to manufacture a fuel or industrial product, they often produce feed or food as a byproduct. Diversifying products and markets is a time-honored strategy of the successful enterprise.
If the shift to a biobased economy is successful, it will spawn thousands of new manufacturing facilities. The high costs of transporting crops will lead many to locate near their raw material supply. Thus the potential for making the next industrial economy both figuratively and literally rooted, for marrying environmental and economic ends, is very high.
Is it possible? Minnesota boasts some 15 ethanol plants, which produce about 10 percent of the state’s automobile fuel. Nothing technically is stopping this from rising to 50 percent or more. About 10 of these biorefineries are owned by about 8,000 farmers. They produce 80-90 percent of all the ethanol produced inside the state. This is a structure that builds both pillars of a carbohydrate economy.
Public policy should favor this type of ownership structure. To date it hasn’t done so. In July, the Commodity Credit Corporation (CCC) issued proposed rules for the distribution of several hundred million dollars to ethanol facilities that expand production. The CCC proposes to offer a higher incentive to smaller facilities than larger ones. That is a step in the right direction. But the CCC has not yet proposed to favor locally owned facilities. U.S. Department of Agriculture officials may believe they lack the authority to do this, but at a Senate hearing at which I testified last spring, several senators bluntly told the CCC that if it requested such authority, they would grant it.
A few months ago the U.S. Department of Energy awarded millions of dollars in grants to encourage a biobased economy. Virtually all the money went to companies that dominate their markets. It may be true that one can expand markets quicker if one can persuade a global corporation to embrace the product and the concept. But an approach that encourages research and development and products appropriate to smaller scaled, locally owned enterprises (including a policy that requires licensing to cooperatively owned enterprises) in the long run might be far more rewarding to farmers and farm communities.
Both USDA’s proposal and DOE’s program will strengthen one pillar of the carbohydrate economy. That is admirable and to be applauded. But they will do little or nothing to build the other, equally important pillar. To achieve a genuine carbohydrate economy, national and state policymakers must act on a fundamental truth learned from a century of agricultural development: ownership matters.
This article originally appeared the Fall 2000 issue of the Carbohydrate Economy newsletter