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.
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).

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Risky work: McCain after touring an ethanol plant in Nevada, Iowa
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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.

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 straight-shooting maverick, as McCain did in 2000.

But for a front-runner - one presumably interested in getting his as-yet-undeclared 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 corn-growing 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 micro-economy. 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 pro-ethanol 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."

________________________

Ethanol rush running out of gas

Q&A with John McCain Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.