[Senate Hearing 110-699]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-699
 
                    FOOD FEED, AND FUEL PRODUCTION:
                           TODAY AND TOMORROW

=======================================================================

                             FIELD HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION


                               __________

                            AUGUST 18, 2008

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov
?


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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota            RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana                  THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas         MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan         PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska         LINDSEY GRAHAM, South Carolina
KEN SALAZAR, Colorado                NORM COLEMAN, Minnesota
SHERROD BROWN, Ohio                  MICHEAL D. CRAPO, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             CHARLES E. GRASSLEY, Iowa

                Mark Halverson, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                Vernie Hubert, Minority General Counsel

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

Field Hearing(s):

Food Feed, and Fuel Production: Today and Tomorrow...............     1

                              ----------                              

                        Monday, August 18, 2008
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, a U.S. Senator from the State of Iowa..........     1
Nelson, Hon. Benjamin E., a U.S. Senator from the State of 
  Nebraska.......................................................     3

                                Panel I

Babcock, Bruce, Professor of Economics, and Director, Center for 
  Agricultural and Rural Development, Iowa State University, 
  Ames, Iowa.....................................................     5
Jenkins, Jim, Chairman, Nebraska Ethanol Board, Callaway, 
  Nebraska.......................................................    11
Lapp, Bill, Principal, Advanced Economic Solutions, Omaha, 
  Nebraska.......................................................    14
Lautt, Jeff, Executive Vice President, Corporate Operations, 
  Poet, Sioux Falls, South Dakota................................     7
Moody, David, President, Iowa Pork Producers Association, Clive, 
  Iowa...........................................................    10
Recker, Tim, President, Iowa Corn Growers Association, and 
  Farmer, Arlington, Iowa........................................    16

                                Panel II

Dale, Bruce, Associate Director, Office of Biobased Technologies, 
  and Distinguished University Professor, Department of Chemical 
  Engineering and Materials Science, Michigan State University, 
  East Lansing, Michigan.........................................    35
DiMagno, Stephen, Professor, University of Nebraska-Lincoln, 
  Lincoln, Nebraska..............................................    38
Foust, Thomas, Biofuels Technology Manager, National Renewable 
  Energy Laboratory, Golden, Colorado............................    33
Oestreich, Dean, Chairman, Pioneer Hi-Bred, and Vice President, 
  Dupont Agriculture and Nutrition, Johnston, Iowa...............    30
                              ----------                              

                                APPENDIX

Prepared Statements:
    Nelson, Hon. Benjamin E......................................    50
    Babcock, Bruce...............................................    51
    Dale, Bruce..................................................    55
    DiMagno, Stephen.............................................    61
    Foust, Thomas................................................    64
    Jenkins, Jim.................................................    71
    Lapp, Bill...................................................    74
    Lautt, Jeff..................................................    82
    Moody, David.................................................    90
    Oestreich, Dean..............................................    95
    Recker, Tim..................................................    99
Document(s) Submitted for the Record:
    Association of Nebraska Ethanol Producers, prepared statement   104
    Clean Fuels Development Coalition, prepared statement........   106
    ``The Impact of Ethanol Production on Food, Feed and Fuel'', 
      Ethanol Across America.....................................   110
    University of Nebraska-Lincoln, Institute of Agriculture and 
      Natural Resources, Department of Animal Science, prepared 
      statement..................................................   115
Questions and Answers:
Harkin, Hon. Tom:
    Written questions to Bruce Babcock...........................   118
    Written questions to Bruce Dale..............................   119
    Written questions to Thomas Foust............................   120
    Written questions to Jim Jenkins.............................   121
    Written questions to Bill Lapp...............................   122
    Written questions to Jeff Lautt..............................   123
    Written questions to Dave Moody..............................   124
Chambliss, Hon. Saxby:
    Written questions to Tim Recker..............................   125
Babcock, Bruce:
    Written response to questions from Hon. Tom Harkin...........   127
    Written response to questions from Hon. Saxby Chambliss......   128
Dale, Bruce:
    Written response to questions from Hon. Tom Harkin...........   130
Foust, Thomas:
    Written response to questions from Hon. Tom Harkin...........   133
Jenkins, Jim:
    Written response to questions from Hon. Tom Harkin...........   137
Lapp, Bill:
    Written response to questions from Hon. Tom Harkin...........   138
Lautt, Jeff:
    Written response to questions from Hon. Tom Harkin...........   139
Moody, Dave:
    Written response to questions from Hon. Tom Harkin...........   141
Recker, Tim:
    Written response to questions from Hon. Saxby Chambliss......   142



                    FOOD FEED, AND FUEL PRODUCTION:
                           TODAY AND TOMORROW

                              ----------                              


                        Monday, August 18, 2008

                                       U.S. Senate,
                                  Committee on Agriculture,
                                    Nutrition, and Forestry
                                                    Omaha, Nebraska
    The committee met, pursuant to notice, at 9 a.m., at the 
University of Nebraska-Omaha, Strauss Performing Arts Center, 
60th and Dodge Streets, Omaha, Nebraska, Hon. Tom Harkin, 
Chairman of the committee, presiding.
    Present or submitting a statement: Senators Harkin and 
Nelson.

    STATEMENT OF HON. TOM HARKIN, A U.S. SENATOR FROM IOWA, 
  CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

    Chairman Harkin. The Senate Committee on Agriculture, 
Nutrition and Forestry will come to order.

   STATEMENT OF JOHN CHRISTENSEN, CHANCELLOR, UNIVERSITY OF 
                NEBRASKA-OMAHA, OMAHA, NEBRASKA

    Mr. Christensen. Thank you, Senator. Good morning and 
welcome to the University of Nebraska at Omaha and the Strauss 
Performing Arts Center. I am John Christensen, Chancellor at 
the University of Nebraska at Omaha, and on behalf of the 
campus community, it is a privilege to host this U.S. Senate 
field hearing on Food, Feed, and Fuel Production.
    It is always an honor to have Senator Ben Nelson back in 
Omaha and on campus and it is a pleasure to welcome Senator 
Harkin from our neighboring State of Iowa. Senator Harkin 
chairs the Senate Agriculture, Nutrition, and Forestry 
Committee and Senator Nelson serves on that committee. 
Together, they have assembled a distinguished panel of experts 
to discuss issues concerning the economic landscape of 
agriculture, renewable fuels, and the potential for increasing 
production of grains, among many other important topics.
    I trust that this will be a productive hearing and please 
enjoy your time on campus. With that, Senator Harkin?
    Chairman Harkin. Chancellor, thank you very, very much.
    Good morning to all of you. It is good to be here in Omaha, 
the heartland of American agriculture, this time of the year. 
All I can say is I hope the ragweed count is lower on this side 
of Missouri than it is on the other side. My allergies----
    Senator Nelson. It is always high.
    Chairman Harkin. Oh, man, it is terrible this time of the 
year. But with all the disastrous flooding and weather that we 
have had over our way, anyway, we are grateful that the crops 
seem to be shaping up better than we feared earlier.
    I am especially glad to be here with my good friend and my 
colleague, Ben Nelson, former Governor of this great State and 
now distinguished Senator. I am just very privileged to have 
someone with his background and his breadth of knowledge of 
agriculture serving on the Senate Agriculture Committee.
    Ben was very instrumental in getting our recent farm bill 
through, which took considerable time and effort, but I think 
we can take some pride in the fact, Senator Nelson, that the 
bill passed the committee without one dissenting vote, so we 
have Republicans and Democrats, North, South, East, West, on 
board. And it passed the Senate with 79 votes, more than any 
farm bill ever in Senate history. So I think it was a good farm 
bill and good for the future and I just want to thank Senator 
Nelson for all of your work and effort in getting that through.
    I had one question, though, that was plaguing me as I 
thought about coming over. I thought, you know, since Iowa is 
the Corn State--supposedly, that is what we call ourselves, the 
Corn State--how is it Nebraska always comes up with all those 
Cornhusker football players who are so good and who beat us all 
the time? I have got to figure that out one.
    Well, agriculture and rural America, are at the center of 
dramatic changes and challenges right now. Energy prices, in 
particular oil and natural gas prices are at record levels, and 
while they may have retreated a little bit they are expected to 
remain well above historic levels of the last several decades. 
This is a real challenge for Americans, and that's especially 
true in rural America where people have no choice but to 
purchase energy for their farms, businesses, and homes. They 
have to travel large distances to get to their jobs, to church, 
family, visits to the doctor and schools.
    Rural America has been rapidly increasing the production of 
renewable energy, specifically biofuels and wind power, and 
this is a major win-win development because domestically 
produced renewable energy is one of the keys to reducing our 
dependence on fossil fuels, and on imported oil in particular. 
At the same time, these new industries are a shot in the arm 
for rural economic growth and farm income.
    In just the past 2 years, grain and oil seed prices have 
also risen above the typical levels of the past few years, and 
while rising farm commodity prices have boosted income for many 
agriculture producers, these kinds of pronounced price shifts 
also have consequences for others in the agriculture sector. In 
particular, strong commodity prices means increased production 
costs for pork and beef, poultry, egg and dairy producers, as 
well as increasing feedstock costs for ethanol and our 
biodiesel plants.
    These economic shifts, including rising energy prices, 
rising commodity prices, related changes in acres planted, the 
increasing production of biofuels, have led many to question 
whether we are on the right path. Whatever one's views on that 
question, it is clear that in our present energy situation, we 
face both huge challenges and potentially huge opportunities.
    So we policymakers need to understand the impacts and the 
tradeoffs better. It is especially important to examine them as 
witnessed and experienced here in the Midwest, where people are 
living their lives and operating their businesses right in the 
middle of these major economic shifts.
    That is exactly why Senator Nelson and I have called this 
hearing. This morning, we want to examine the current situation 
with prices and production costs as well as the new 
opportunities and challenges that have arisen. Then we will 
take a look at future prospects for the transition of the 
agriculture sector to producing growing amounts of fuel and 
energy in addition to the food, feed, and fiber that we have 
done in the past.
    With that, I will turn to my distinguished colleague and 
good friend, Senator Nelson.

 STATEMENT OF HON. BENJAMIN E. NELSON, A U.S. SENATOR FROM THE 
                       STATE OF NEBRASKA

    Senator Nelson. Well, thank you very much, Chairman Harkin, 
and thank you, Chancellor Christensen. I know this is a double 
opportunity for UNO for us to be here today, and not the least 
of which is the opportunity for some of the students to be able 
to hone their skills in taping and following along with the 
communications. So I appreciate that very much, as well.
    Senator Harkin, it is always good to have you in Nebraska. 
We prefer it when it is not a football Saturday, but we are 
glad to have you here. I think we have Iowa right where we want 
them when it comes to football--off the schedule. We are hoping 
that the Cornhuskers are well on their way back.
    It is good to be with my friend, Senator Harkin. A little 
known fact is every so often in December, we get a chance to 
hunt together and we take that very seriously. I am hoping 
maybe we will be able to do that again this year. It is about 
time.
    Chairman Harkin. I hope so.
    Senator Nelson. And to say thanks for scheduling this 
hearing because of the importance of getting facts out about 
ethanol, about our energy needs, and about our energy sources 
and how we can deal with what is clearly the No. 1 problem in 
terms of our economy for every American. There are some 
Americans hit harder than others, but we are all affected by 
the low dollar, by high oil prices and escalating food prices, 
and sometimes it is just important to have the facts as opposed 
to all the opinions that are floating out there. Opinions based 
on fact are one thing, but opinions that seem to be lacking 
facts are something that we ought to deal with and get to the 
bottom of.
    Now, I will admit that corn-based ethanol is not perfect, 
but it has been blamed for practically every problem under the 
sun. You have to ask, what is next, summer colds? Computer 
viruses? Bad hair days? The focus here should be on what I 
think is the bigger picture.
    Ethanol is the only domestically produced alternative to 
oil-based transportation fuels. It is helping us in a major way 
to stretch the gasoline supply, save American consumers money 
at the pump, create jobs in rural communities, improve our 
rural and national economy, and to top it off, help wean us off 
imported oil.
    Ethanol is a major contributor to the U.S. gasoline supply. 
One study says it is the third largest behind only Canada and 
Saudi Arabia and ahead of Iraq and other OPEC countries. And 
today's corn-based ethanol is paving the way for the next 
generation of biofuels produced from such materials as 
switchgrass and stover, wood chips, and a whole host of other 
biomass materials.
    There are those who have said, well, that makes a lot more 
sense than corn-based ethanol and they are happy to be part of 
the second generation of ethanol. I am glad that there is a 
second generation. I wish those folks had been here to help us 
in the first generation, because without the first generation, 
I can say without any question of being contradicted with my 
good friend Senator Loren Schmidt here, that if it hadn't been 
for corn-based ethanol as the first generation, you wouldn't be 
talking perhaps about a second generation.
    So to ethanol's critics, I ask, why farm out our energy 
needs to foreign suppliers when we are producing so much clean 
burning renewable fuel right here on our own farms? And Senator 
Harkin and our committee, our Senate Agriculture Committee, 
worked hard to change the name officially from the farm bill to 
the Food and Energy Security Act, because we recognized that we 
are dealing both with food security and energy security here at 
home.
    We all want to see agriculture survive and prosper, 
including grain farmers, livestock producers, ethanol 
producers, and food processors, while still benefiting the 
average American family, our local communities, our national 
energy security, and the national economy. This is money wisely 
invested in the American Midwest and not in the Middle East.
    So I am looking forward to hearing our witnesses today and 
hopefully see the facts provided as we explore the 
relationships between food, fuel, and feed, and we have added 
another ``F'' word, fiber, because we recognize the importance 
of that part of agriculture, as well. I am especially pleased 
that we are able to do it here in the Midwest where agriculture 
is king and it is something that has dominated the news 
recently.
    I am just hopeful that we will be able to see what ethanol 
contributes in the way of supporting lower gas prices. One 
estimate noted that ethanol lowers gas prices by 15 percent, 
which at today's prices, which are changing--fortunately, they 
have been going down, rising a little, but the trends seem to 
be good--it would lower gas prices by 57 cents per gallon. And 
an Iowa State study estimated that ethanol lowered the price of 
gasoline by as much as 29 cents to 40 cents per gallon. So I 
would suggest that ethanol's critics do keep that in mind the 
next time they fill up their tank.
    So with that, let us now turn the program back to Senator 
Harkin, who I know will be introducing the panelists. Thank 
you.
    Chairman Harkin. Thank you very much, Senator Nelson.
    We have two panels of distinguished individuals. The first 
panel was organized to talk about the current status of 
agriculture economics and energy, and related issues. The 
second panel is looking more towards future possibilities, 
productivity and sustainability issues. However, I am sure 
there is going to be a lot of crossover from one panel to the 
other because we are here to talk about what is down the road 
in the future.
    So with that, we will just start with our first panel. We 
have a copy of your written statements. They will be made a 
part of the permanent record in their entirety, without 
objection. I would like to ask as we go down the row--I will 
start with Dr. Babcock--if you could just limit your comments 
to maybe five or six minutes.
    So we thank you for coming here to Omaha this morning. 
Thank you for being a part of this panel and this process, but 
even more so, I thank all of you for all of your involvement. I 
have read all of your bios and I read your testimonies last 
night and I just thank all of you for your involvement in this 
issue of agriculture and its evolution, how we are going to 
balance these needs, and what our future is going to be like in 
terms of providing both, as Ben said, the food and fiber, but 
also fuel.
    With that, Dr. Babcock, you are first up to the plate. 
Welcome.

    STATEMENT OF BRUCE BABCOCK, PROFESSOR OF ECONOMICS, AND 
 DIRECTOR, CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT, IOWA 
                  STATE UNIVERSITY, AMES, IOWA

    Mr. Babcock. Thank you, Mr. Chairman, Senator Nelson, for 
the opportunity to testify today about how the economics of 
agriculture have recently changed.
    From about 1950 until just recently, we experienced a long-
term decline in inflation-adjusted food and agricultural 
commodity prices because productivity growth outpaced demand 
growth. This decline in real prices meant that more of the 
world's poor were able to afford adequate calories and to move 
to a more varied diet. This increasing ability to feed a 
rapidly expanding population was a major success story for the 
second half of the 20th century.
    The move toward food with higher protein and fat content 
has meant a steady increase in the demand for feed grains and 
oil seeds. This demand growth, combined with a slowdown in 
investment in agriculture research, may have meant a future in 
which supply would have more trouble keeping up with demand and 
a possible reversal of the long-term decline in real food 
prices. We will never know because the recent sharp increase in 
fossil fuel prices, combined with changes in biofuels policy, 
has made that possible future a reality today.
    Up until the last 2 years, energy prices affected 
agriculture primarily by influencing production costs, 
particularly fertilizer and diesel prices. But we have now 
linked energy and feed prices so both production costs and crop 
prices are influenced by energy prices. Biofuels plants' 
ability to pay for corn and vegetable oil are directly 
influenced by crude oil prices.
    Corn and soybean farmers today and in the next 5 years are 
in a can't lose demand situation because of the new RFS and the 
rapid expansion in biofuels plant capacity, so let me explain. 
For corn farmers, the new ethanol mandates means that they have 
a new demand for between 25 and 30 percent of their crop. To 
induce farmers to plant adequate corn acreage will require 
prices high enough to cover the costs of planting an additional 
15 to 20 million acres. I estimate that we will need at least 
$3.50 to $4 corn per bushel, and that is needed to ensure 
adequate acreage. This level of prices should be adequate to 
cover all non-land production costs. So the future looks pretty 
bright for corn producers.
    If crude oil prices remain above $100 per barrel, then the 
economics of corn ethanol production will look so good that I 
expect the corn ethanol industry to grow beyond mandated 
levels, particularly if the blenders tax credit is continued.
    Strong corn prices also mean strong soybean prices because 
of the competition for land between the two crops. The only 
potential downside in demand for U.S. soybeans is if South 
America ramps up production so rapidly that world supplies 
overwhelm demand. But poor policy decisions in Argentina and 
Brazilian plans to devote increasing amounts of land to sugar 
cane production suggest that soybean production in South 
America will not be overly rapid.
    Excess biodiesel capacity guarantees that soybean oil 
prices will not fall too rapidly, even if South America does 
ramp up production. Low soybean oil prices would quickly 
trigger biodiesel production in idled plants, which would 
quickly strengthen prices. The level of the price support for 
soybeans and soybean oil depends on the price of diesel and 
whether the biodiesel tax credit is extended. With a wholesale 
price of $3.50, soybean oil prices should not fall below about 
50 cents per pound. At current soybean oil prices, this oil 
price translates into a soybean price of about $11 to $12 a 
bushel. So corn with $4, soybeans at $11, corn and soybeans are 
looking pretty good for the next 5 years.
    The impact of continued high feed costs on the U.S. 
livestock industry is fairly straightforward. Livestock prices 
will eventually increase enough over the next year or two to 
cover producers' increased feed costs. This price increase will 
happen either because U.S. producers or producers in other 
countries reduce production. It will likely be a combination of 
both, though high feed and transportation costs actually could 
work to the long-term advantage of U.S. producers.
    When feed is inexpensive and shipping costs are low, 
producers in other countries aren't too disadvantaged by 
importing U.S. grain and exporting meat. But high feed and 
shipping costs makes imported feed a much more important cost 
of production, which increases the advantage of U.S. producers 
because they only have to ship the meat. They don't have to 
ship both meat and feed. Furthermore, many U.S. producers have 
an advantage in that their animals' manure can be readily used 
as a substitute for high-priced fertilizer.
    But as increased feed costs work themselves through the 
system, we will see dairy, meat, and egg prices higher than 
they otherwise would be. If we somehow cap the amount of animal 
feed that goes into biofuels production, then we will 
eventually see corn and soybean productivity gains show up 
again in lower food prices.
    To summarize, the economics of agriculture have been 
fundamentally changed by the linkage of energy and feed 
markets. There seems little doubt that we will see biofuels 
production from corn and vegetable oil meet the new mandated 
levels. If future plant capacity does not exceed these levels, 
then future productivity gains will only need to keep up with 
increased food demand rather than increased food and fuel 
demands. This lower threshold of performance should increase 
the odds that a high-quality diet will continue to be 
affordable for a large proportion of the world's populations.
    [The prepared statement of Mr. Babcock can be found on page 
51 in the appendix.]
    Chairman Harkin. Thank you very much, Dr. Babcock. I made a 
mistake. I should have introduced you appropriately. Dr. 
Babcock is the Professor of Economics and he is Director of the 
Center for Agricultural and Rural Development at Iowa State 
University, with over 20 years' experience in the field. He is 
a nationally recognized expert on the state of the agriculture 
economy and the impact of Federal biofuel policies on 
agricultural markets. Thank you, Dr. Babcock.
    Next, we turn to Mr. Jeff Lautt, the Executive Vice 
President of Corporate Operations at POET, the nation's top 
ethanol producer. Based in Sioux Falls, South Dakota, POET is a 
20-year-old company that currently operates 23 production 
facilities in the United States, I am told, with three more 
under construction. The company produces and markets more than 
1.3 billion gallons of ethanol annually.
    Mr. Lautt, welcome to the committee. Please proceed.

 STATEMENT OF JEFF LAUTT, EXECUTIVE VICE PRESIDENT, CORPORATE 
          OPERATIONS, POET, SIOUX FALLS, SOUTH DAKOTA

    Mr. Lautt. Mr. Chairman and distinguished committee 
members, thank you for the opportunity to visit with you today. 
POET, as you said, has 23 ethanol production facilities 
currently in operation and three more that will be commissioned 
this fall, bringing our total production capacity over 1.5 
billion gallons per year.
    Energy independence for the United States can be a reality. 
This is the result of an ever efficient corn-based industry 
coupled with the future of cellulosic ethanol. Thanks to the 
tremendous corn yield improvements, grain-based ethanol has the 
potential to continue to grow by leaps and bounds. We believe 
that 50 billion gallons of grain-based ethanol per year can be 
produced here in the U.S. in the next couple of decades without 
substantially increasing food prices or acres.
    Grain ethanol production is also getting more efficient and 
more environmentally friendly. According to a recent study by 
Argon Laboratories, in just the last 5 years, the dry mill 
ethanol industry has reduced energy consumption by 22 percent 
and water usage by 26 percent. Developments are being made 
possible to eliminate natural gas usage by the refineries, as 
well.
    One example is our plant in Chancellor, South Dakota, which 
in the next couple of weeks will commission a solid fuel boiler 
that will burn wood waste to power 60 percent of the plant's 
power needs. A pipeline is also being installed to a nearby 
landfill which will pipe methane gas to the bio-refinery. 
Eventually, this will replace nearly all of the plant's natural 
gas usage.
    The U.S. also has an incredible natural resource of 
biomass. A report from the DOE and USDA show that there is over 
one billion tons of available biomass in this country. This 
biomass could eventually be turned into energy if our nation is 
committed to doing so. One million tons of biomass has the 
potential to turn into 85 billion gallons of cellulosic ethanol 
annually. If you combine this with the grain-based ethanol 
opportunity, we could eventually produce 135 billion gallons of 
ethanol, which is over 90 percent of the nation's gasoline 
usage. This, of course, requires sound and stable policy.
    Today, the renewable fuels industry is facing some major 
challenges. The ethanol industry has been the target of a 
public relations defamation campaign that has severely damaged 
our industry's reputation. This campaign has inaccurately 
pitted food against fuel. Food or fuel is not a choice we have 
to make. It does not need to be one or the other. It can and 
should be both.
    An issue that clearly needs to be understood is that there 
is currently a small market for ethanol in the U.S. Contrary to 
many beliefs, there is not an undersupply of ethanol today, but 
rather an oversupply. That is why ethanol is currently selling 
for approximately one dollar under gasoline. According to auto 
manufacturers, most of the vehicles in this country are only 
warranted for 10 percent ethanol. Consequently, ethanol is 
essentially limited to 10 percent of the gasoline supply. This 
is commonly referred to as the blend wall.
    The current gasoline usage in the United States is 
approximately 140 billion gallons annually. Ten percent of that 
is 14 billion gallons. However, it is not realistic to 
penetrate every single gallon, so experts predict the blend 
wall to be around 12.5 billion gallons. We expect to crash into 
this wall sometime in 2009, if not before.
    Flex fuel vehicles along with higher blends of ethanol is 
certainly a big part of the long-term solution, but this will 
take several years to accomplish. To continue on the path of 
reducing our dependence on foreign oil, higher blends of 
ethanol are needed today. If the ethanol market is allowed to 
expand, investors will have the confidence they need to 
continue to invest in cellulosic ethanol production. Without 
higher blends, there is literally no place for any additional 
ethanol to go, which will threaten the development of the 
commercial cellulosic ethanol industry. We must move beyond E10 
to achieve energy security.
    Additionally, there has been much recent reduction on 
removing the tariff on Brazilian ethanol. If foreign ethanol 
were allowed to enter this country without a tariff as the U.S. 
ethanol industry is approaching the blend wall, the goal for 
energy independence will be set back decades. The U.S. biofuels 
industry will be crushed. Investment has already slowed down 
considerably due to the blend wall. With tariff-free Brazilian 
ethanol entering our country, investment will cease, and this 
will apply to not only grain-based ethanol, but cellulosic 
ethanol development, as well.
    Additionally, if the tariff were to be dropped, the U.S. 
taxpayer would actually be subsidizing Brazilian ethanol 
because its use would be subject to the blenders tax credit 
just the same as U.S.-produced ethanol. Protecting U.S. 
production and modeling portions of Brazilian ethanol policy 
seems more reasonable.
    POET is one of the leading developers of cellulosic 
technology. We have invested tens of millions of dollars in 
cellulosic research and are prepared to invest hundreds of 
millions more to make this a reality. The commercialization of 
cellulosic ethanol is not far off. POET announced last week it 
will be producing cellulosic ethanol at our pilot scale 
facility later this year in Scotland, South Dakota.
    Construction of our commercial-scale facility in 
Emmitsburg, Iowa, is scheduled to begin in 2009. The plant is 
expected to commence commercial production in 2011. But if we 
are suddenly faced with an influx of Brazilian ethanol in our 
market while we are simultaneously running into an ethanol 
blend wall, we will not be able to see this dream become a 
reality, nor will the many others who are diligently working on 
this process.
    If we truly wish to see a change in our nation's 
transportation fuel supply, we need to do the following. We 
need to create a larger market for ethanol by allowing higher 
blends in today's vehicle fleet. The 10 percent blend wall will 
stop investment in both grain-based and cellulosic-based 
ethanol. It is critical that the EPA approve a rate greater 
than 10 percent ethanol before year-end 2009.
    We need to mandate that all new vehicles are flex fuel. It 
takes 17 years to convert our automobile fleet. It is a minimal 
cost to make a new car flex fuel and we should not delay this 
any longer.
    We should incentivize the installation of blender pumps 
throughout the nation. Blender pumps give the consumer the 
choice of multiple ethanol blends. We need to allow the 
American consumers to choose his or her fuel blend based on 
performance and price.
    We need to support cellulosic ethanol development. The 
recent farm bill has three important provisions that will help, 
which USDA needs to implement on a timely basis. They are loan 
guarantees; repowering; harvesting, storage, and 
transportation.
    And finally, we need to focus on a U.S. solution. The 
natural resources are available. It is important we continue to 
support the upstart biofuels industry. Today's grain-based 
ethanol industry is the foundation for cellulosic ethanol. The 
tax credit and tariff are critical pieces of legislation that 
will allow the nation's energy potential to be fully realized. 
The U.S. ethanol industry has demonstrated in the past that we 
can meet the challenge and we stand by ready to do so in the 
future. Make no mistake. This problem is solvable in the United 
States. The natural resources, ingenuity, and technology are 
all right here. We simply need our nation's will.
    Thank you for the opportunity to testify today. On behalf 
of POET and the entire renewable fuels industry, we thank you 
for the past legislation that is truly making a difference in 
the nation's energy supply and POET looks forward to working in 
partnership with Congress and the administration to reach the 
national goal of 36 billion gallons by 2022.
    [The prepared statement of Mr. Lautt can be found on page 
82 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Lautt, for a very 
good statement, very provocative, I think, in laying out where 
we are and where we might be headed.
    Now we will turn to Mr. Dave Moody, the current President 
of the Iowa Pork Producers Association. He has been involved 
with the Association for the past 15 years. Mr. Moody has been 
involved in pork production for nearly 40 years and currently 
manages H&K Enterprise, a farrow-to-finish business. He farms 
over 1,000 acres of corn and soybeans at his farm near Nevada, 
Iowa.
    Mr. Moody, thanks for being here.

   STATEMENT OF DAVID MOODY, PRESIDENT, IOWA PORK PRODUCERS 
                    ASSOCIATION, CLIVE, IOWA

    Mr. Moody. Thank you for the invitation to this hearing 
today. As the Senator has just said, I am Dave Moody, President 
of Iowa Pork Producers Association and a producer from Nevada, 
Iowa.
    We have all heard about the perfect storm and many in 
agriculture are being forced to respond to issues well beyond 
their control. We are at an important crossroads in American 
agriculture where we must work cooperatively to produce food, 
feed, and fuel simultaneously. Just last week, the USDA 
released the August crop report and it appears that conditions 
of the crop have greatly improved over previous months. During 
the next few weeks, farmers will begin to focus on weather 
conditions to mature the crop and hope that we don't see an 
early frost this year.
    As you will learn from other speakers, these demand and 
supply issues will persist for several years as we work through 
these changes. This year's demand-supply situation has resulted 
in dramatic and rapid changes in commodity prices. For example, 
we have seen record prices for cattle and hogs this summer, but 
many livestock farmers still have not been able to break even 
because of rising input costs. As a farmer myself, this same 
fear of input cost inflation will possibly and probably affect 
the grain farming in the next couple of years.
    Earlier this summer, corn reached $7 a bushel. However, it 
has dropped nearly $3 at this point in time. This rapid 
increase and decrease has resulted in tremendous stress among 
farmers, lenders, grain merchandisers, and consumers and 
others. To say that this year has been a wild rodeo in 
agriculture is definitely an understatement.
    As we move forward, we need to look at these. The demand-
supply issues for row crops has highlighted needs to balance 
important end use of the crops. Causes of tight supplies 
include cold, wet springs, delayed crop progress, flooding, 
weak dollar, and high energy costs. As margins for livestock 
and ethanol production has eroded, we must look for new 
approaches to improve efficiencies.
    While we may have averted disaster this year that it was 
looking like in mid-June, we need to look at policy options for 
the future. One of the most encouraging may be corn 
fractionation for ethanol production. Fractionation is the 
high-speed separation of the corn kernel into four basic 
components so the parts can be used more efficiently. It is 
currently very expensive to implement this fractionation at 
ethanol plants and we want to help develop and support the 
adoption of this new technology. Congress should begin by 
investing in different approaches and demonstrations and then 
let the industry adopt the technology that shows the greatest 
promise. Frankly, the technology in the short term may be more 
effective than cellulosic ethanol.
    We believe this presents the whole agricultural community 
and the Nation a win-win opportunity. When used in ethanol 
production, it reduces energy consumption, reduces 
transportation costs of the co-products, reduces water 
consumption, it increases ethanol production, and it helps to 
create a greater number of high-quality co-products that the 
livestock industry may use.
    We must also work and support research institutions in 
ongoing scientific feed trials to ensure co-products can be 
used in our feeding rations accurately and the feed value can 
be publicly documented. As new co-products are created, feed 
documentation will continue to need support regardless of what 
type of livestock is being fed.
    Other policy options--many other approaches have been 
discussed, such as early release of CRP. I want to thank all 
the Senators who have supported you, Chairman Harkin and 
Senator Grassley from Iowa, for supporting the early release of 
the CRP acres for grazing and hay.
    Also, the preventative planning dates and crop insurance 
adjustments need to be reviewed to make sure that when we have 
incidents like we had this summer, that we get some sort of 
crop planted on these acres that get flooded out.
    And finally, the Texas waiver for the EPA request has now 
been decided. It is behind us, and other panelists today can 
discuss the decision in greater detail.
    In summary, Congress can take great steps forward by 
investing in projects and policies that will more efficiently 
produce food, feed, and fuel simultaneously. Thank you.
    [The prepared statement of Mr. Moody can be found on page 
90 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Moody.
    I would now yield to Senator Nelson for the purposes of a 
couple of introductions.
    Senator Nelson. Well, thank you, Chairman Harkin. It is my 
pleasure to introduce Mr. Jim Jenkins today, who is the 
Chairman of the Governor-appointed Nebraska Ethanol Board, 
which is a State agency devoted to the development of our 
ethanol industry in Nebraska. He also is a range-to-restaurant 
beef producer and comes from Callaway, Nebraska, and is no 
stranger to the issue from the standpoint of feed as well as 
fuel. So Jim?

  STATEMENT OF JIM JENKINS, CHAIRMAN, NEBRASKA ETHANOL BOARD, 
                       CALLAWAY, NEBRASKA

    Mr. Jenkins. Thank you. Thank you, Chairman Harkin, Senator 
Nelson. I, too, am honored to be a part of this discussion on 
this panel and certainly, as you have just outlined my 
background, I find myself squarely in the middle of these 
issues. I think this is one of the most--since moving back to 
my family ranching operation in 1996 and actually having 
participated in agriculture for over 30 years, I believe this 
is probably one of the most exciting times that I have 
witnessed. We have a lot of challenging things, but a lot of 
opportunities that have come about as a result of the biofuel 
revolution in this country.
    I agree with you, Senator Nelson. What we need to do is get 
to the facts. There is a lot of emotion. People have lined up 
and drawn lines in the sand and I really am trying to encourage 
all of my friends on both the livestock side, the corn side, to 
sit down and try to work through some of these issues.
    It seems to me that as I look back over the last 30 years 
in agriculture, the principal challenge we have faced is we 
have had too much food. We have had stagnant commodity prices. 
We have had large subsidies going to farmers from the taxpayer. 
When I moved back to the ranch in 1996, my friends on the East 
and West Coast were telling me that they were upset because 
farms were being subsidized. Our international trading partners 
were accusing us of dumping cheap grains onto the market.
    We roll forward now ten or 11 years later and we have a 
little bounce up in commodity prices, and now, of course, the 
food for fuel criticism is coming out, and despite the fact 
that oil has gone up 900 percent from its low point seven or 8 
years ago, 9 years ago, and grain, corn has gone up around 300 
percent, and commodity prices are still from an inflation-
adjusted level extremely competitive and actually fairly 
inexpensive, we are, I believe, paying less than 10 percent--
each consumer is utilizing less than 10 percent of their budget 
for food, we are facing this food for fuel criticism.
    The other thing that I think that people need to understand 
is that only 19 cents out of every dollar goes to the farmer, 
so it is a long way from the farmgate to the consumer plate, 
and I know that as a restaurant operator. I know that as a 
rancher. The plain fact of the matter is where I am getting 
killed both as a restaurant operator and a rancher is high oil 
prices. Energy is absolutely hammering us.
    And I am appreciative of the fact that what we are finally 
doing in agriculture is we are doing two principle things. 
Because of ethanol, we are diversifying our fuel or our energy 
portfolio, which is something that we are all advised to do in 
our financial portfolios. And second, we have diversified our 
farm economy and finally got out of the rut of $2 corn prices, 
which by the way are no panacea for the cattle feeding 
industry.
    Now, I can't speak for the pork guys or the poultry people. 
I know they are facing some unique challenges. But the plain 
fact of the matter is the byproduct, co-product, distillers 
grains that are available to cattle feeders, basically we are 
able to, as most people in this room know, use nearly 50 
percent of the grain, a bushel of grain that is used in the 
ethanol process comes back as a feed source.
    Beyond that, I think it is important to understand why $2 
grain is hard, bad, for the livestock industry. With $2 grain, 
we face an over-fattening of cattle, and I see this 
particularly in the restaurant industry. If you look at the No. 
1 complaint that retailers and restaurant operators have, it is 
that for decades, we have had to trim huge quantities of fat 
off our animals. Now the good news is that because you can 
fatten cattle to a large degree on forage--80, 85 percent of 
their intake can come from forage--you end up now moving to 
more innovative grazing practices and forage usage practices 
that have really not been talked about to date.
    For example, on my ranch, I am running 20 to 25 percent 
more pounds per acre than my father was running. Why? Because I 
have adopted what I call progressive or more modern grazing 
practices. We have been able to put more water on the ranch. We 
have used rotational grazing. The plain fact of the matter is, 
here in Nebraska, we have 50 percent of our lands in grass, and 
with $2 corn, there was not a lot of incentive to really manage 
those grasslands very well. I am not saying we were being bad 
stewards. I am suggesting to you there is a tremendous amount 
of innovation that has come from using those grasslands and 
what happens is using those grasslands more appropriately.
    Right now, I would estimate that probably less than 10 
percent of ranchers and farmers in Nebraska are fully 
implementing some of the grazing techniques that would allow 
for more forage and less corn. So in addition to being able to 
use that foodstock coming out of an ethanol plant, 50 percent 
of it, we are also, I believe, able to go out and more 
efficiently use the corn stock residues, crop residues, and 
grazing lands.
    Some other points I would like to make are that we need to 
let the marketplace work. Right now, the marketplace is 
currently signaling to cattle producers, feedlot operators, do 
not bring me that livestock when it is 500 pounds. We do not 
want that beef animal until it is 800 to 900 pounds, getting 
paid a premium for 800-pound animals. So we have a great 
opportunity to watch this market work.
    We have seen it go from $7 down to $5, as has been 
indicated earlier. What I would say is that let us not panic. I 
know when we hit $7 corn, believe me, I was panicking. I had 
1,000 head of yearlings out there that I thought the price 
might get caved in on. The fact of the matter is, the market is 
working.
    The final point I would like to make is that there has been 
a lot of criticism of ethanol for being subsidized. Well, I 
think if we look back at history, we can find that--we can see 
that this country is made great for a couple of reasons. One, 
the free market has been in full force.
    Second, we have had democratic institutions that have had 
the flexibility and the vision and the insight to partner with 
the free enterprise system. Look at transportation, all the key 
sectors, the Transcontinental Railroad that Abe Lincoln sent 
through to allow us to get products to market. Our educational 
system, whether it be land grant universities doing research 
for agriculture, energy, technology through our Defense 
Department and our space program. So the notion that we should 
not subsidize or help, at least initially provide a foundation 
and infrastructure for energy to me does not live up to our 
history as a nation. What we need to do is have the vision to 
understand that we can work together through the public and 
private sector to build a biofuel industry that diversifies 
that energy portfolio, and just as importantly, puts a strong 
foundation under agriculture.
    We do need to be concerned about making sure that livestock 
producers are not critically hurt if there is a severe drought 
or other factors that might come in, so I would suggest as a 
final comment that you folks consider, the Congress consider 
looking at ways to mitigate major problems created by drought.
    I am very appreciative of being a part of this discussion 
and look forward to hearing the other remarks from the panel. 
Thank you.
    [The prepared statement of Mr. Jenkins can be found on page 
71 in the appendix.]
    Chairman Harkin. That was very good.
    Senator Nelson. Well, thank you very much, Jim.
    It is now my pleasure to introduce Mr. Bill Lapp, who is 
the Principal of Advanced Economic Solutions of Omaha, 
providing economic and commodity analysis to agribusiness and 
food companies. He is also a Director of the Kansas City Board 
of Trade and serves on the Board of the Farm Foundation in the 
Kansas City Federal Reserve Board Center for the Study of Rural 
America. He has over 25 years of experience in analyzing and 
forecasting economic conditions and commodity markets. I know 
he is going to tell us how we get out of the conundrum we find 
ourselves in. Bill?

STATEMENT OF BILL LAPP, PRINCIPAL, ADVANCED ECONOMIC SOLUTIONS, 
                        OMAHA, NEBRASKA

    Mr. Lapp. Mr. Chairman, Senator Nelson, it is a pleasure to 
have you here in Omaha, my home town, for this hearing. We are 
glad to be able to facilitate this for you. As you mentioned, I 
am the Principal of Advanced Economic Solutions. We provide 
economic and commodity analysis for a broad array of food 
companies, and with my background, I hope to give you the 
perspective of food manufacturers, restaurants, and primary 
input producers.
    Between 1981 and 2006, spikes in commodity prices have been 
mostly weather-related. In all cases, these increases in prices 
have been short-lived and with limited impact upon consumer 
food inflation. For the most part, the increases in commodity 
prices have been absorbed by food manufacturers to avoid a loss 
of market share, and this contrasts directly with the current 
environment of sustained increases in commodity prices. Today, 
food manufacturers are unable to absorb the sharp increase in 
input costs, and as a result, food price inflation has begun to 
accelerate and the rates of food inflation are likely to 
continue to increase in the coming years.
    The overwhelming majority of companies that my firm works 
with indicate that rising input costs driven by the surge in 
commodity prices has created the most difficult and challenging 
environment from a raw material cost perspective that they have 
faced in more than 20 years. The current environment, with 
sharp and sustained input costs, has created significant 
pressure on margins and is compelling the food industry to 
raise prices to consumers.
    The Bureau of Labor Statistics data on food prices confirm 
the trend in rising costs to the consumer as well as the 
producer. Historically, the Consumer Price Index for food 
increased by an average annual rate of 2.3 percent between 1998 
and 2006 and has not been in excess of 6 percent since 1980. 
However, the impact of higher commodity prices is beginning to 
translate into higher consumer prices, and in 2007, the CPI for 
food rose by 4.9 percent, and thus far in 2008, the CPI for 
food has increased at an annualized rate of 7.6 percent. This 
includes double-digit rates of inflation for staples such as 
bread, cereal, salad dressing, rice, and eggs.
    A couple things to know. First of all, the Producer Price 
Index for food has increased at an even greater rate, near 10 
percent this year. And the second point I would make is that 
consumer price for proteins, for meat prices, has only been 
modest. This is consistent--the Consumer Price Index data from 
the Bureau of Labor Statistics is consistent with the American 
Farm Bureau Federation's survey of supermarket prices, and that 
shows that the five meat prices they track have increased only 
1.7 percent from a year ago.
    Due to the biological limitations in the livestock industry 
as well as high levels of fixed costs, livestock producers do 
not typically respond quickly to changes in feed costs. They 
are incapable of doing so. However, in the current environment, 
which is characterized by very poor and negative margins, 
producers are expected to reduce their output. The USDA's most 
recent forecast is for total meat and poultry production to 
actually decline in 2009 by 1.2 percent, a development that 
they believe will lead to higher livestock prices and 
ultimately higher prices for the consumers.
    Earlier this year, Advanced Economic Solutions completed an 
analysis of the outlook for food inflation for the next 5 
years, 2008 through 2012, and I might note that this is an 
update of a study originally completed at the request of the 
National Corn Growers Association. In that study, Advanced 
Economic Solutions estimates that consumer food inflation will 
increase by an average rate of 9 percent between 2008 and 2012 
as the rising costs are passed on ultimately to the consumer.
    I might mention a few things about ethanol and the 
relationship to corn and food prices, and there have been many 
studies and it is a tough subject to get your hands around. So 
I thought I would run through just a few facts.
    While there has been discussion of the impact of poor 
weather in recent years, the reality is, as USDA data suggests, 
we have had above-trend or trend yields. In 2006-007, yields 
were 4 percent above the previous 5 years, and 2007-008, world 
yields were again above the 5-year average. In other words, it 
is difficult from a statistical point of view to blame the 
weather for the dramatic rise in prices we have seen in recent 
years.
    A second fact is that the world wheat and coarse grain 
usage forecasts by the USDA is expected to increase 3.3 percent 
between 2006-007 and 2008-009, so a 2-year gain on an 
annualized basis of 3.3 percent. This is well above the rate 
during the previous 10 years of 1.2 percent and higher than the 
average yield we would see in the past 25 years.
    The growth in this use of world wheat and coarse grain is 
dominated by ethanol. During that 2-year period, ethanol 
production in the U.S. using corn will account for 46 percent 
of the growth in demand. As the U.S. and the world struggles 
with tight stocks, high feed costs, and increased food 
inflation, we should keep in mind that nearly half the growth 
in grain use worldwide for wheat and coarse grains can be 
attributed directly to the mandated use of corn to produce 
ethanol.
    A third fact I might mention is that the growth in use of 
grains has led world stocks of wheat and coarse grain to the 
lowest levels on record, and this has occurred in spite of high 
record prices for grain and oil seeds.
    At present and in the foreseeable future, the impact of a 
decline in yields, such as we were threatening to do earlier 
this year, would be dramatic for grain and oil seeds prices and 
ultimately for consumer prices.
    Another fact I might mention is that more acreage will be 
needed. We need more acreage here produced in the U.S., and 
particularly due to the demand mandated by the Renewable Fuels 
Standard. In the United States, just to meet existing demand 
for wheat, corn, soybeans, and cotton, plus the mandated growth 
in ethanol, U.S. farmers will need to plant an additional five 
million acres of major crops in 2009. Grain and oil seed prices 
are already high, but a shortfall in acreage or yields in 2009 
would drive prices dramatically higher.
    And finally, let me mention that livestock margins have 
been extremely poor due to the increase in feed costs. When 
corn prices were over $8, or near $8, I should say, in late 
June, the pork industry, the cattle feeders, and the broiler 
producers were losing, in my estimate, roughly $8 billion on an 
annualized basis, which is more than the U.S. airline industry 
was projected to lose this year.
    USDA analysts suggest that livestock producers will reduce 
output by 1.2 percent in 2009, with prices for livestock 
expected to increase. And while there have been limited gains 
in consumer prices of protein to date, the reduced availability 
of meat will ultimately be reflected in higher consumer prices 
at some point probably in 2009.
    Thank you, Mr. Chairman and Senator Nelson, for the 
opportunity and I look forward to your questions.
    [The prepared statement of Mr. Lapp can be found on page 74 
in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Lapp.
    And now for our wrap-up witness, we go to Mr. Tim Recker, 
President of the Iowa Corn Growers Association. He produces 
corn and soybeans near Arlington in Fayette County, Iowa. His 
testimony here today is on behalf of the Iowa, Nebraska, and 
National Corn Growers Associations, which have worked so hard 
to promote the use of renewable fuels.
    Mr. Recker, welcome again to the committee.

     STATEMENT OF TIM RECKER, PRESIDENT, IOWA CORN GROWERS 
            ASSOCIATION, AND FARMER, ARLINGTON, IOWA

    Mr. Recker. Thank you, Chairman Harkin, Senator Nelson. 
Thanks for the opportunity to comment on the food and fuel 
debate. As Senator Harkin said, I am Tim Recker, President of 
the Iowa Corn Growers, and I am speaking on behalf of 59,000 
corn growers who are represented by the Iowa Corn Growers, the 
Nebraska Corn Growers, the Nebraska Corn Board, and the 
National Corn Growers Association.
    Over 30 years ago, corn farmers saw ethanol's potential to 
benefit producers and consumers. Our check-offs have spent 
millions of dollars on ethanol research, education, and market 
development, and our growers know we have contributed endless 
hours to promote policies that would give ethanol a chance, 
because given a chance, we knew ethanol would succeed.
    Today, producers and consumers are benefiting from the hard 
work corn farmers are producing for the marketplace and the 
market is working. We are a long way away from the huge 
government-owned stockpiles of grain of the mid-1980's, and 
even the USDA subsidies couldn't halt the exodus of farmers and 
the wave of bank closings. Today, the world is hungry for 
protein and petroleum and our corn growers can deliver both--
energy from ethanol and protein from corn-fed livestock.
    Our ethanol industry is still developing, but is already 
producing jobs that keep young people in our communities. It is 
improving the tax base that supports local schools and 
government services. And it is pumping renewed economic life 
into small towns and prompting new business.
    And what about consumers? While high oil prices are 
limiting family vacations because the dollars just don't 
stretch, ethanol is reducing the pressure on family budgets.
    Using ethanol increases our overall energy supply. Ethanol 
in an E10 blend means for every ten gallons of gasoline that 
you pump, there are 11 gallons of fuel at the pump. In E85, or 
putting E85 in a flex-fuel vehicle, for every three gallons of 
gasoline, you have 20 gallons at the pump.
    My written testimony cites economic analyses that 
demonstrate what I am saying, but I will just point out that 
Midwestern consumers now save about 45 cents out of every 
gallon of fuel because ethanol is in the marketplace.
    In retrospect, the Renewable Fuels Standard is as good for 
U.S. consumers as it is for corn growers. Not surprisingly, 
though, some interest groups want to roll back the RFS and 
other key policies, such as the blenders credit and the ethanol 
tariff.
    We have seen unprecedented efforts this year to spread 
disinformation about ethanol, and unfortunately, some people 
are buying into the false claims. Today, I would like to set 
the record straight.
    Despite what alarmists have claimed, USDA's August 12 
production report projects the second-largest U.S. corn crop 
ever. The world agriculture supply and demand estimates project 
greater carryover stocks at both the national and at the 
international level. USDA puts the average farmgate price in 
this current market year somewhere in that $4.25 and projects 
an average price between $4.90 and $5.90 next year.
    Our industry continues to produce higher yields with less 
erosion and less chemicals. We have gone from 66 bushels an 
acre 50 years ago--and that is a few years before I started 
farming--to a projected 171 bushels today. We have genetic 
experts that tell us that 300-bushel corn is a reality and a 
realistic target for the foreseeable future. U.S. growers are 
supplying plenty of corn for both food, feed, and fuel uses.
    We know livestock feeders have struggled with the spike in 
corn prices, and it is because I am a hog producer. We want all 
agriculture to be profitable, but targeting ethanol will not 
solve livestock's problem. Many factors have produced these 
prices, notably increased world demand for millions of people 
who want more meat, milk, and protein in their diets, and at 
the same time feed, wheat, and barley supplies have tightened 
because of crop problems in other countries and the weak U.S. 
dollar has made it easy for foreign customers to continue 
buying as prices have climbed.
    Changing U.S. ethanol policy won't change international 
demand, but it could harm U.S. livestock producers by reducing 
corn for ethanol, since they also use distillers grain in those 
diets. For livestock operations located near ethanol plants, 
distillers grains are a valuable alternative to help manage 
feed costs.
    Corn growers support the U.S. livestock industry and we 
work with livestock producers in many ways on many issues. We 
spend our checkoff dollars on research to improve feed products 
and on the market development for red meat exports. We want to 
solve the problems that really hurt livestock producers, like 
the $50 million per week that beef producers are losing because 
of export problems in Japan and Korea.
    Ethanol opponents have blamed corn prices for high food 
prices, and many economic studies confirm that other input 
costs, notably high oil prices, are the real culprit to our 
food increases. In fact, most consumers save more on fuel 
because of ethanol than any other corn-related increase in food 
prices. For an average family, their fuel savings from ethanol 
is estimated to be $1,500 a year. That is because the share of 
the food dollar that goes to all farmers, not just corn 
farmers, is now below 20 cents.
    Look at corn's role in specific foods. Four-dollar corn 
contributes just 13 cents to the cost of a gallon of milk, 18 
cents to a quarter-pounder, 28 cents of corn in a dozen eggs, 
and 31 cents of corn in a one-pound Iowa pork chop. A bowl of 
corn flakes and milk for breakfast contains less than two 
cents' worth of corn.
    We are supplying enough corn for food, feed, and fuel. U.S. 
and world consumers are better off because of ethanol and we 
ask Congress to maintain the RFS, the ethanol tariff, and the 
blenders credit.
    And I might add just as a personal note that the RFS is 
bigger than all of us livestock industry. It is bigger than 
corn. It is bigger than livestock. It is a road map for the 
United States, the future of energy independence, and we 
encourage you to support it. Thank you.
    [The prepared statement of Mr. Recker can be found on page 
99 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Recker. Thank you 
all very much for very succinct and very pointed statements.
    I would like to open it up for a general discussion, to 
have more of a discussion than questions or anything like that. 
We might have some specific questions for certain individuals, 
but I think I would like to just start by picking up on where 
Mr. Recker just left off because it is the one thing that is 
out there that we have been wrestling with on our committee, 
and I hear it all the time in the halls of Congress, and that 
is that with these food prices going up, the ethanol is just 
sucking up all that corn and is causing all these prices to go 
up. All of you in a way addressed that question to some extent. 
I would like to examine it a little bit further.
    We do have some statistical data on this, as I think Dr. 
Babcock knows. We do have some statistical basis on which to 
go. And then there is kind of people's generalized conceptions 
out there. For example, I was looking at my notes here. Mr. 
Jenkins, I was reading your testimony--no, no, it was Mr. Lapp. 
I am sorry. You had a survey in which ninety percent of those 
surveyed said that 90 percent of the ethanol was the primary 
driver of the food price rise. Well, from what I am hearing, 
that is not so. That just seems to be based on opinion and 
there seems to be a lot of PR. There has been a lot of PR out 
there by the grocery manufacturers and the oil companies and 
others to instill that thought out there, that so much of this 
is driven by ethanol.
    I want to know what the facts are. And again, from your 
knowledge base, No. 1, what is the biggest driver of food price 
increases now, and what is the role of ethanol? Where does 
ethanol come in? Is there a percentage figure? Is it small? Is 
it large? About where is it? I will just go down the pike. Do 
you understand what I am saying? In your opinion, what is the 
biggest driver of food price increases and what part does 
ethanol play in that? Dr. Babcock?
    Mr. Babcock. Well, that is a very hard question to answer, 
of course, but high energy prices have affected every segment 
of the economy and food is no different. Food is a fairly 
intensive energy user and it is a lot of transportation costs 
embodied in food. So clearly, higher energy prices have led to 
higher food prices.
    Ethanol, the expansion of the ethanol industry also has 
impacted the overall level of ingredient costs to the food 
manufacturers. There is no doubt about it. And it doesn't come 
from the direct effect only. It also comes from indirect 
effects in terms of competition for land, in terms of almost 
the knowledge of needing more corn in the future leads to 
higher prices today to make sure that we allocate the current 
supplies of corn through the future.
    And I fully expect continuation of the RFS. I agree with 
Mr. Lapp that in the next few years, we will see meat prices 
and dairy prices increase because of higher feed costs. Those 
higher feed costs are driven primarily by expansion of ethanol.
    So if you want a percentage change, probably to date, 
energy prices have been the No. 1 contributor to higher food 
prices. I would expect if we see stabilized energy that in the 
future, as we work through the higher feed costs through our 
dairy, our livestock industry, we are going to see ethanol 
become a larger--or feed costs become a larger contributor, and 
ethanol, like I said in my testimony, is the primary 
determinant now of feed costs.
    Chairman Harkin. Anybody else? I didn't mean to go down the 
row, so if anybody else wants to speak to this, just indicate.
    Mr. Lautt. Mr. Chairman, I agree with Mr. Babcock that it 
is a difficult thing to pick a number on. Our organization 
looks at a lot of the different studies that come out from the 
different universities and private industries that are trying 
to do the economic modeling of the impact as well as looking at 
the different studies that come out from the different 
government sections, as well, and we assess their assumptions 
they use in their modeling to make sure if we agree with it, 
does it make sense, since they drive the results.
    The one that we thought made a lot of sense was the one 
that came out from the Economic Advisors for the President's 
Office which cited that recently, 3 percent of the overall rise 
in recent food prices is associated to ethanol's impact on corn 
prices. So it is, again, transportation costs the large driver. 
Corn has had some impact, but I think it is much more minimal 
than a lot of people have attributed to.
    Chairman Harkin. Again, if you don't want to address 
yourself to that, you don't have to, but------
    Mr. Moody. Well, as I stated in my comments, we have kind 
of faced the perfect storm. I mean, there have been a lot of 
things come at the market and supplies that have caused prices 
to rise. But indeed, as Dr. Babcock indicated, as feed prices 
have risen for the protein products that consumers eat, they 
will be rising down the road and that is--to date, it has been 
very minimal of ethanol's impact on food prices, I believe. But 
there will be more because of that feed cost rise in 2009.
    Chairman Harkin. Well, the one thing I also want to throw 
out here on the table is, OK, so what I have heard from three 
so far, or two anyway, is the possibility of increases because 
of the increased demand for more grains for fuel production. 
But are we missing a point here? I think Mr. Recker talked 
about increased productivity, and on the next panel we are 
going to have some people talk about that, but you are all in 
this business. What about it? Ten, 15 years ago, if someone 
told me we were going to produce 150 bushels an acre, I would 
have said, it is impossible. Now, we are at 200, roughly, more 
and booming up. As you pointed out, DuPont and others are 
saying 300 bushels. We will breeze past that soon.
    So not only increased productivity, but new hybrids are 
getting more mature in a shorter span of time. We have shorter 
growing seasons. Because of climate change or whatever else is 
happening out there, we are getting corn crops in Southern 
Canada like we used to get in Iowa. Are we taking that into 
account, increased productivity?
    Mr. Moody. I think that is certainly, definitely a help. 
One of the factors is the time line here. If this time line was 
a little longer, everyone would have been able to have a chance 
to adjust. But we are trying to make this all happen--and we 
are not trying. It has all happened in a very, very short time 
period and livestock producers, as indicated earlier by one of 
the gentlemen to my left here, don't make that quick change. I 
mean, it takes just--you physically can't when you are dealing 
with another living body, that you can't make that immediate 
change. And that is part of the big factor that has affected 
the livestock industry, is that this has been such a dramatic, 
quick change.
    Chairman Harkin. Mr. Jenkins?
    Mr. Jenkins. I think one of the simpler question is whether 
we want to go back to $2 corn. You know, is that good for the 
base foundation of agriculture? Is it good for our country? Is 
a cheap food policy, which is what we have put in place through 
taxpayer subsidies, is that really the way we want to go? For 
30 years, livestock producers have had subsidized grain, and as 
I stated earlier, the downside of that, it leads to very 
inefficient feeding practices.
    Now, are we going to make the change quickly? No, but I can 
see already, living right there in a rural community, engaged 
in buying food in my restaurants, producing cattle and also 
producing corn, that there is much innovation that is beginning 
to happen. We have got farmers up in Custer County now putting 
in drip irrigation systems. Now, they are very expensive, but 
with the new crop prices, they are able to do that. We have no-
till or minimum-till or low-till starting to now sweep the 
State. It has incrementally come into the State for the last 20 
or 30 years, but nowhere to the degree that we have seen it now 
that fuel prices, oil prices, have surged. Diesel is up well 
over $4.
    So we can go back to cheap food. I am just not sure cheap 
food is a great long-term policy. The fact that we could ship 
$2 grain overseas and have them add value to their agriculture 
while we end up with a subsidized farm economy, I don't think 
is a great solution, either.
    Chairman Harkin. Mr. Lapp?
    Mr. Lapp. Chairman, I guess I am looking forward to the 
comments in the second panel on productivity because I know 
that the USDA put out a study about slowing productivity, and I 
think Dr. Babcock indicated that there is some slowdown in at 
least the investment to get there. So productivity has been 
slow and that is a problem, because I look at 25 years of data 
on yields for world wheat and coarse grains and they are 
increasing 1.6 percent no matter what decade you look at, and 
whether events increase and decrease that, but over time.
    Since 2002, we have had a number of impetuses for us to 
move higher. We are not going back to $2 corn. The world 
economy has been growing. It is probably the most rapid decade 
of economic growth we have experienced in history. We have an 
extremely weak dollar. China has evolved as a major force. 
Energy prices have had their impacts, and there has been some 
impact from biofuels.
    If you look at 2002 to 2006, the impact of biofuels has 
been much more limited than it has been in the last few years, 
and as I mentioned, nearly half of total world wheat and coarse 
grain usage from 2006 to 2008 will be strictly for the use of 
ethanol. So it has changed.
    And I have some ideas of how this impacts the other crops 
and inflation and the specific one I will bring to mind is that 
if you are growing more corn, unless you can find acres of 
another crop, and perhaps some from the CRP if there were a 
change in policy there, you have to steal it from another crop, 
and the challenge there is you enter an acreage battle.
    In the fall of 2006, that became very evident. I have the 
dubious distinction of going to a livestock producer in 
September of 2006 and telling them that because we don't have 
enough acreage, corn might reach $3. I was only off by half, 
which is more accurate than some of my forecasts. But the idea 
that we need more acreage for all these crops because demand 
worldwide is growing 3.3 percent a year and our yields only 
increase at present roughly less than 2 percent presents us 
with a battle and has put us at liability of having sharp 
increases.
    Ethanol has certainly played a big role, and the fact that 
corn impacts the acreage of wheat and soybean oil and edible 
beans and other crops used to produce food has a dramatic 
impact.
    Chairman Harkin. Let me just ask, and I want to yield to 
Senator Nelson, but I just wanted to pick up on that. I was 
looking again at your testimony and listening to you, Mr. Lapp. 
You said that, basically--let me get the figures here--3.3 
percent annual growth between 2006 and 2007, and 2008 and 2009, 
so you are talking about a 2-year period------
    Mr. Lautt. Two years------
    Chairman Harkin [continuing]. We have had an increase in 
usage of wheat and coarse grain worldwide of 3.3 percent. But 
then you say the average increase in yields per acre--listen to 
this--of 1.58 percent over the past 25 years. So you have used 
3.3 percent for the increase in demand over 2 years------
    Mr. Lapp. Yes.
    Chairman Harkin.--1.58 percent increase in yields over the 
last 25 years. Is that a good way to look at it?
    Mr. Lapp. You mean in terms of the time disparity there?
    Chairman Harkin. Yes, the time disparity. That is what I 
am------
    Mr. Lapp. Sure. I think looking forward, at that time, when 
I initially did that research, but 2009 and beyond, what should 
be our expectation for increasing------
    Chairman Harkin. Well, I'm wondering, what has been the 
growth in productivity not in the last 25 years, but in the 
last 10 years, 5 years? What has been the growth in 
productivity? I don't know. I am asking that.
    Mr. Lapp. Decade by decade, it has been similar.
    Chairman Harkin. About 1.5 percent?
    Mr. Lapp. One-and-a-half, 2 percent, depending on which 
decade.
    Chairman Harkin. So is this a good way of looking at it? I 
am asking, is this an accurate way to look at this? If the 
demand for coarse grains has gone up over 2 years 3.3 percent 
but productivity has only gone up 1.5 percent, what does that 
tell us about what is happening down the road? Is demand going 
up more than the productivity?
    Mr. Recker. Senator, maybe I can help answer that.
    Chairman Harkin. Yes?
    Mr. Recker. Thirty years ago, farmers said, we know how to 
grow corn and we can grow it very well, but we didn't have a 
market for it. Every year, we had burdensome supplies. In the 
last 2 years of my farming career, we finally have got a demand 
for our product, and when you are going to see the growth, and 
what you are talking about is growth in the yield on those same 
acres that we planted 10 years ago, the double-digit kind of 
growth, is the technology we have in the bag that we have just 
begun to start tapping into that has been on the shelves of 
seed companies for many years until we are able to afford it.
    And the technology that is in the seat in the tractor cab 
and the combines I drive today, being able to put nutrients 
with sub-inch accuracy and technology, now that we have a 
demand for the product, don't underestimate the Midwest corn 
grower from being able to over-produce the market and actually 
over-produce himself into an unprofitable situation again.
    Chairman Harkin. Senator Nelson?
    Senator Nelson. Thank you, Mr. Chairman.
    To try to understand what impact, let us say, the foreign 
markets of demand for product has, there seems to be some 
misconception about what feed corn is, that this somehow is 
going to be supplied to the rest of the world directly for food 
as opposed to feed.
    Is the fact that the rest of the world is picking up so 
that you see an increase in many areas, whether it is China or 
India or some of the developing countries, where there is now a 
demand for product, for protein, that that demand is 
outstripping supply at the moment? In the past, where we were 
over-producing but still shipping overseas, weren't we, in 
fact, shipping subsidized product to various countries and now 
the countries are, because of demand, are paying a price closer 
to what they should have been paying for some period of time? 
Is that accurate?
    Mr. Recker. I agree, and I agree, and I agree with 
everything you said.
    Senator Nelson. And so if we look at it that way, then when 
it is good for American agriculture, because we are getting the 
price that we should be getting for profitability, it is 
unfortunate that other parts of the world are having to pay the 
price, and we can't control that unless we are going to try to 
control markets over the rest of the world sometimes like we 
have tried to do here at home. So unless we do that, we are not 
going to be able to solve their problems by our prices.
    But my question is for you, with our high prices for our 
exports, won't that stimulate more production in those other 
parts of the world because they can produce it for less than we 
can? So perhaps we are not the ogre that people are trying to 
make us out for the rest of the world. The rest of the world 
can respond on their own, as well. Is that fair, Mr. Lautt?
    Mr. Lautt. Yes. I think that is dead on. We are seeing 
foreign countries like China, like Brazil, like India, start to 
respond. For example, in China today, their average yield in 
corn is 78 bushels an acre. Why not adopt U.S.-type 
technologies? Well, there has never been an economic incentive 
to do so. The same thing in Brazil. The same thing in all these 
countries.
    Well, now for the first time, the price of agricultural 
commodities is above the price of production and the cost of 
production to incentivize worldwide change. I think the 
difficulty is we are in an evolution or a paradigm shift not 
only as a country, but as a globe, because this is a global 
market, and the paradigm shift is mentally where, A, 
commodities can only be used for food and feed. The reality is, 
we have found that they can also be used for food and feed and 
energy.
    And I can tell you that companies like ours, as well as 
many others here in the U.S. and abroad, this is just the 
beginning. There are things like nutraceuticals, bio-based 
materials, chemicals, things that consumers buy readily over 
the shelf today that are a byproduct of petroleum will be made 
from things like corn in the future. So this is just the very 
early stages of what really is an agricultural revolution, 
where we are going to have multiple demand streams for our 
commodities.
    Senator Nelson. I am a bit puzzled by the concern about 
ethanol using up the feed supply, where between 30, as I have 
heard testimony here, between 30 and 50 percent of the product 
was back in the form of distillers grain, I guess, or product, 
for feed. So the total use of 30 percent of the corn, if it is 
that high, or 20 or whatever the percentage of our corn crop is 
used, you have to factor in that number can be reduced by the 
brand that is created that is now available for feed. Is that 
being ignored, underestimated? What are your thoughts about 
that?
    Mr. Jenkins. I just saw a publication--I won't mention 
which one--an agriculture publication that made reference to 
the feed usage, and cattle are the No. 1 user of feed corn in 
the United States. It didn't have that math in there. There is 
no question that distillers grain is being consumed, and I 
think the accurate number is about 40 percent, and when you 
look at it from an energy perspective, from a food value or 
feed value, it actually goes up to 50 percent. So the cattle 
industry is using that. There is no question. That is 
happening.
    The other thing that Dan Loy at Iowa State University noted 
in a recent interview is that--and he is a beef nutritionist--
he said that the cattle industry can get by on 40 percent less 
corn, or they can lower the ration. My point is, we talk about 
acres fighting for each other. Drive down I-80 some winter and 
see how many corn stalks are going into an animal. I mean, 
there are--I would like to know, maybe somebody can quantify 
it, but there are literally tens of thousands, probably 
hundreds of thousands of acres that are simply being disked 
under.
    Terry Klopfenstein at the University of Nebraska has 
demonstrated that if you put feeder cattle out on corn fields 
and use distillers grain to supplement their diet, you are $45 
or $50--and I am doing this off the top of my head, but maybe 
as high as $60 better off than putting them right into a feed 
yard. But you have to put them out there, fence them. There are 
some management issues. And the great thing about it, the corn 
stalk nutrition does not leave those fields. They have also 
done research that showed the impact on yield over 9 years was 
zero because those cattle, of course, eat the cornstalks and 
deposit--90 percent of the nutrients go back right into it.
    So I think we are missing one of the great opportunities 
the cattle industry has not to fight with wheat or corn or 
soybeans, but to actually fully utilize crop residues and 
pasture lands out there in a way that we have never used them 
before. That is one of the things that has not been quantified 
or documented, but it is absolutely happening on my ranch and 
ranches all around me.
    Senator Nelson. Yes. That may not work quite as well for 
the pork producers------
    Mr. Jenkins. But it does free up, if I could just say, and 
boy, I am not going to edge out the pork producers here 
because, really, I know you guys are facing a tough challenge. 
I have got a good friend up in Custer County who I have had 
long talks with about this. But what it will do is if the 
cattle industry can consume significantly less corn, which I 
think it can--how significant, I don't know, I am not an 
economist--and fully utilize and leverage those distiller 
grains, it will then free up that corn for the poultry people 
and help us work our way into a new sort of corn-livestock 
economy.
    Senator Nelson. So maybe help is on the way, Mr. Moody, but 
you need it today, right?
    Mr. Moody. What is that?
    Senator Nelson. I said, help may be on the way, but you 
would like to have it today.
    Mr. Moody. Yes, that is--exactly. We needed it a few months 
ago, is when we needed it. But yes. When you start dealing with 
the pork and poultry, you are dealing with a simple stomach 
rather than the ruminant animal that cattle are and you have to 
have a more specific diet, and that is why I spoke about the 
corn fractionation to get the parts separated so that we can 
have a higher-quality product to be able to use. I mean, there 
is definitely an answer in this somewhere that everybody can 
live with and we just have to work together to find that 
answer.
    There have been issues with trying to feed the distillers 
coming out of the backside the way it is done today with the 
simple stomach animals. We have got fat quality issues in 
carcasses if we get too much in there, and from plant to plant, 
there are not the same consistencies, which creates problems. 
You can have a little more variation in some of your beef 
diets, maybe, but when you get in with the poultry and the 
pork, you need to have a pretty specific constant diet or you 
get into problems. And so that is where our real challenges 
have been in trying to use the current byproducts or co-
products of the ethanol industry.
    Senator Nelson. Well, I think it may be safe to say, and I 
ask it as a question, is it safe to say that paradigm shifts 
come in a variety of different sizes. There are those that take 
a longer period of time to develop. This seems to be one that 
has come faster and some areas of agriculture have been able to 
adjust as quickly as they would prefer. So you get caught in 
the middle of a paradigm shift and you can be left with major 
challenges to work through that over a period of time we will 
work our way through, but in the meantime, there are some 
challenges that are very hard to meet. Is that fair to say?
    Mr. Recker. I might add that the market is working. The 
market did work this year. There was a concern of not having 
enough corn and all of a sudden, once we went past that time 
when we knew we were going to have enough corn, the market has 
plummeted over $2.50. And just to put that in perspective, 
$2.50 was my average selling price for the last 22 years of 
farming. The market dropped $2.50 in about 40 days. So corn 
farmers are also facing that same paradigm that you talk about.
    Senator Nelson. Well, I think that we really haven't 
talked, but I suspect the second panel will get into it more, 
about the second generation of biofuels and what that will do 
in terms of meeting the ethanol requirements for the future in 
America today. Corn is not going to be able to, even with 
technology and with increased yields and with everything that 
we do, is not going to be able to meet all those expectations 
and requirements. That is why we will go to the second 
generation. But it doesn't have to be at the expense of the 
first generation, and hopefully we will be able to sort out how 
corn-based ethanol will work in the market, but also continue 
to be available for feed and also for livestock of all sorts, 
including poultry.
    Chairman Harkin. I think Senator Nelson really nailed it 
when he talked about the increased prices here that would lead 
to better production and more production around the world. I 
mean, that would be--rather than low prices, a little higher 
prices will tend to spur that production. I think that is a 
point that a lot of people are really missing.
    I thought I might just expound on that just a little bit. 
You know, people are always talking about, well, other parts of 
the world in terms of their grain production and they are 
lagging behind. There are really, it seems to me, two reasons 
for that. One, in many of these countries, they have increased 
their population substantially in the last 50 years, huge 
increases in population. But their systems of agriculture are 
like they were 100 years ago, or 150 years ago, or even more. 
They have not adopted the new technologies, the new agriculture 
practices that will allow their productivity to increase.
    Second, in many of these countries that I have traveled in 
and looked at agriculture, one of the biggest drawbacks is the 
lack of infrastructure, roads, simple roads. Farmers are out 
there. They have got tillable land and arable land, but they 
can't get it to market because they don't have an 
infrastructure.
    So you kind of combine those two things and you can see 
that it is not our problem, it is an internal problem in a lot 
of those countries. And some of those internal problems, we 
can't solve. It is up to those countries. If they want to make 
those decisions to put in that infrastructure, if they want to 
make those decisions to adopt new practices, new genetics, new 
hybrids, new tillage practices, they can do that, and we should 
help them. I have no problem in helping them do that, but it is 
up to those countries to make those decisions.
    Second, the issue of subsidies came up. You talked about 
that, Mr. Jenkins, about subsidies. There is always this 
problem of the market and subsidies, and I think, again, you 
kind of put your point on it, that a lot of times, it does take 
public support to get these to mature. I always think back 
about when we went from horses to automobiles, cars. I am sure 
a lot of people thought horses were just fine. We had been 
using them for hundreds of years, plus those new-fangled cars, 
they won't go down those mud roads. Horses will. Cars won't. 
Well, but then the public came in and started building gravel 
roads and farm-to-market roads and paved roads and blacktopped 
roads and the rest is history.
    Also, talking about subsidies, I challenge anyone here to 
look and see how much the taxpayers of this country have put 
into subsidies for the initial development of and the continual 
exploration and development of the oil industry and petroleum 
industry in this country. It dwarfs, dwarfs anything that we 
are doing in ethanol or ever will do in ethanol. I mean, from 
the very beginning, it was government policies and tax 
subsidies and everything that enabled the petroleum industry to 
develop like it did.
    So again, for us to say, well, OK, now we are going to go 
into a new technology, into ethanol, of course, we provide some 
initial input to help get it going. But market forces will take 
over later on and spur it on. So we shouldn't be too afraid of 
this. We have done this in the past with numerous other things.
    And there are inequalities out there. For example, we have 
been talking about building a pipeline for transporting 
ethanol. Well, because some of the existing pipelines won't do 
it, there are all those problems and stuff, but there is an 
interesting thing in the tax code. A publicly traded 
partnership can get certain tax benefits for building oil and 
gas pipelines. In the tax code, it actually is written that 
they get these tax benefits for the transportation of non-
renewable fuels. Why is that there? Why shouldn't it be there 
for renewable fuels?
    So Senator Grassley and I worked together. He is Ranking 
Member on the Finance Committee. And so we changed it and it is 
in the tax extenders package that is now before us, and 
hopefully we will be voting next month to change it so the 
publicly traded partnerships get the same advantage if they 
want to build an ethanol pipeline as if they want to build an 
oil pipeline or a gas pipeline.
    Now, with that, I have been told by a couple of companies 
that if they get that, they have got right-of-way, they can 
begin building some ethanol pipelines that will go from Iowa to 
the East Coast, Nebraska, Minnesota, South Dakota. We will 
begin to pipe that stuff. Then it will really be cheap for the 
consumers back East, back in Philadelphia and Boston and New 
York and New Jersey. Then they will be able to have some of 
this ethanol and they will see it tend to reduce their gasoline 
prices.
    But again, these are the kind of governmental policies that 
have skewed us one way rather than the other, and I think that 
it's time for us to say, well, we have something here that is 
home-grown. We know we are dwindling in oil resources, and as 
someone said in their testimony, T. Boone Pickens said we can't 
drill our way out of this problem. We can drill and we can get 
more oil, no doubt about that, but not enough to solve the 
problem itself. We have got to develop new technologies and new 
types of fuels.
    Last, cellulose. We haven't talked a lot about cellulose. 
Now, I just read in the paper that POET is starting a new 
cellulose plant in South Dakota. You are doing the one in 
Emmetsburg where you are attaching it onto an existing corn 
ethanol plant. But in the farm bill that Ben and I worked so 
hard on, we put a lot in there to spur cellulose ethanol, both 
on the bio-refinery side, for loan guarantees, and on the 
production side to help to stimulate farmers to grow more 
cellulosic crops. That means we could be making cellulose 
ethanol in Georgia and Florida and Louisiana and Alabama and 
Oklahoma and Kansas, Nebraska, the Dakotas, places where we can 
grow trees or where we can grow grasses, switchgrasses and 
miscanthus and other kinds, including prairie grasses.
    I just finished reading a book a little bit ago called The 
Worst Hard Time. I recommend it to anybody. It was written by 
Egan. It is about the dust bowl. He summed it up by saying that 
for years, we have been trying to plant different crops in this 
area, but really the crop that grows the best is what grew 
there for 12,000 years after the glaciers retreated, grasses. 
They sequester carbon. They are perennial. You can graze on it. 
And you can also harvest it for cellulose, and you don't have 
dust bowls any longer.
    This could be a great basin of production, from the 
Canadian border to the panhandle of Texas and that broad swath 
down there. Not all of it. Obviously, some of it is going to be 
used for wheat and corn and other things. But there is a lot 
that could be used if we give the right incentives and the 
right signals to people.
    So we put a lot in that farm bill to move us in that 
direction. We haven't talked a lot about cellulose, but maybe 
that is the next panel, too, but you are all interested in 
this. We have got to call this panel to a halt, and I talked 
too long, but what about cellulose? Isn't that also going to 
assist us? The RFS, Renewable Fuels Standard, says that we are 
going to have--we are supposed to have 32 billion gallons of 
the biofuels by 2022, of which--I think I am right--no, 36 
billion gallons by 2022, of which 21 must be advanced biofuels, 
leaving 15 for corn-based.
    So what do you think about that whole area of cellulose 
ethanol and what that is going to mean?
    Mr. Lautt. I will take a stab at that one. That is, again, 
very point on, Mr. Chairman. Again, we talked about paradigm 
shifts. Here is a paradigm shift. Now, there are a number of 
companies focused in this area. Everybody is taking a little 
bit different approach, which I think is good. Our company is 
focusing on corn cobs. Part of that is we think, let us not 
reinvent the wheel. Today, we have X-number of acres throughout 
the corn belt. These cobs just get sent out the back of a 
combine. So we are working with different equipment 
manufacturers to collect these cobs in an efficient manner.
    But the paradigm shift is going to become we want the 
farmer to collect those and deliver them to the plant, no 
different than they do the corn today. And so we are working 
with farmers, we are working with agriculture equipment 
manufacturers, working with different universities to 
understand the impacts to the field. And then our team is 
working on the actual science of processing those cobs.
    And so the announcement that you referred to is we have 
been working on the research side in the laboratories. We have 
made some significant gains to the point we are now going to 
build a pilot facility to produce a set of small pilot scale 
which will then get transformed or commercialized at Emmitsburg 
and be the first facility in Iowa. And again, to Senator 
Nelson's comments, it is going to be integrated with an 
existing corn-based facility which is why the two, generation 
one and generation two, are very important.
    But without some of these very important incentives, and I 
applaud you guys on all the hard work on the energy title in 
the farm bill, it would be almost impossible to incentivize 
companies like us to invest, to incentivize producers to 
harvest the biomass, to collect the biomass, to a point to 
where it gets efficient and it is sustainable, no different 
than our practices are today of collecting and harvesting corn 
and transporting it to whether it is elevators or to ethanol 
producers.
    So it is very viable. I think there will be a number of 
approaches which will be successful, but there are a lot of 
hurdles and there will be a lot of hard work. But with the 
right signals through policy, which you folks have done for us, 
I think it is going to keep us working hard to get there.
    Chairman Harkin. Any other views on this at all?
    Mr. Lautt. And can I make one other comment, please? And 
that is just to show the scope and size. Just from cobs alone 
in the U.S., we can produce an additional at least five billion 
gallons of ethanol just from cobs. You have talked about 
grasses. We have talked about a lot of other things. Just cobs 
alone, we can make another five billion gallons. That is 
significant.
    Mr. Babcock. I just wanted to comment on that. The key to 
not making the food versus fuel debate worse by cellulosic 
ethanol is to identify those feedstocks that don't use 
cropland, and there are a lot of feedstocks out there that 
don't use cropland. I mean, the worst thing would be to take 
prime land out of production and plant grasses on it for 
cellulosic feedstocks. There are other feedstocks that can be 
used and I think corn stover, corn stocks, the corn cobs is the 
No. 1--it is going to be the first big volume feedstock that is 
going to not make worse the food versus fuel debate because it 
is a crop residue. The other one is wood waste that is being 
wasted now. So tapping into waste streams is the most efficient 
way to go for cellulosic feedstocks.
    Mr. Recker. I agree that any of us farmers will do whatever 
is profitable, but I have to agree with Dr. Babcock that we 
sure don't want to be convincing corn growers to be planting 
grassland and really exacerbating our problem with our 
livestock friends further by reducing the amount of corn that 
is planted. But there are products within the corn plant that 
we can use and all forms, just wood waste and waste in cities. 
But whatever is going to be profitable for corn farmers, they 
will adopt into cellulosic technology.
    Senator Nelson. Well, one final comment about subsidy and 
the high cost of the production of ethanol that some people 
have raised that question pretty continually during the whole 
process. Ethanol is a net user of power, or of energy to 
produce and the comments about that. But if you really factored 
into the cost of oil coming from the Middle East the cost of 
the defense of the Middle East and the military cost associated 
with that, you would see that maybe the cheap oil that existed 
in the Middle East wasn't so cheap, and if the true cost had 
been shown at the pump, one wonders how much faster we would 
have come to the first generation of alternative fuels.
    So when we look at subsidies, what we really need to look 
at is what the true cost is of doing it, and then another cost 
is maybe harder to quantify. But the real cost associated with, 
and it is a fair cost that we want to pay to become energy 
independent so that we are not relying on others, on other 
parts of the world for our energy needs, which has affected us 
significantly.
    The final thing is, last week, I toured Southwest Nebraska 
where now there are oil wells pumping and being drilled. I know 
it is happening in North Dakota. They are pumping there. What 
has happened is the high cost of oil has now driven it back to 
domestic production, which we had domestic production but it 
cost too much to bring it out of the ground here when you could 
get it over there. Well, over there, we weren't factoring in 
the true costs.
    But I think we are all today frustrated economists to one 
degree or another without the advantage of the skills or the 
education, but we are all trying to do that. But I think people 
are adding two and two and getting four and asking the question 
of why wouldn't we keep our money here at home?
    We have to compliment T. Boone Pickens for raising the 
awareness of people today just about windpower, to name one 
source of alternative fuels and renewable fuels. But I think 
the American people are wiser today, better consumers, and we 
have the opportunity to do things here at home and I think most 
people will bear with us as we really see this paradigm shift 
so that we are much more energy efficient, but energy producing 
here at home.
    Chairman Harkin. Thank you very much, Senator Nelson.
    Do any of you have any last things you would like to add 
that haven't been brought up or that we need to know about, or 
what you think we ought to be doing? It is open to anybody at 
all, if there are any last things.
    [No response.]
    Chairman Harkin. Going, going--well, thank you all very, 
very much for being here. I thought it was a very good 
interchange and good testimony. We appreciate it very, very 
much.
    Now we will move to our second panel. We will take a short 
break first. Since it is a quarter to 11, we will get back in 
10 minutes.
    [Recess.]
    Chairman Harkin. We will now move to our second panel. I 
just wanted to take this time to also mention a couple of 
people who are here with us today. Leland Strom, who is Chair 
of the Farm Credit Administration is here, Leland, right here, 
and also Nancy Pellet, a member and former Chair of the Farm 
Credit Administration is here, also.
    Now, with our second panel, we wanted to look upon sort of 
where are we headed. The last panel is where we are, what is 
happening out there, what are the dynamics. I certainly got 
ahead of myself a little bit at the end about talking about 
cellulose ethanol, but this panel is focused on where are we 
headed.
    And so again, the same rules apply. Each of your statements 
will be made a part of the record in their entirety. I ask that 
you keep to five or 6 minutes and we will just go from my left 
to right.
    So our first witness is Mr. Dean Oestreich. He is the 
Chairman of Pioneer Hi-Bred and Vice President of DuPont 
Agriculture and Nutrition located in Johnston, Iowa. Mr. 
Oestreich has been with Pioneer since 1974, starting as a corn 
breeder, for years working global operations before becoming 
President of Pioneer and now also its Chairman.
    Mr. Oestreich, thank you very much. It is an honor to have 
you here, and please proceed.

  STATEMENT OF DEAN OESTREICH, CHAIRMAN, PIONEER HI-BRED, AND 
  VICE PRESIDENT, DUPONT AGRICULTURE AND NUTRITION, JOHNSTON, 
                              IOWA

    Mr. Oestreich. Thank you, Chairman Harkin, Senator Nelson. 
Thank you very much for allowing me the opportunity to comment 
on this important topic today.
    Pioneer and our parent company DuPont are fully engaged in 
working to help society meet the needs for food, feed, fiber, 
and fuel from agricultural products. We are doing this through 
applying science to come up with solutions, science-based 
solutions for society moving forward. We also recognize that 
policy plays an important role in the agricultural productivity 
equation and I look forward to working with you as you work to 
craft new policies to help improve U.S. agriculture as well as 
the global condition.
    My message today is a very simple one. We have a 
fundamental belief that agricultural productivity can meet the 
needs for food, feed, fiber, and fuels from agricultural 
products for the global needs. Through the 20th century, the 
U.S. farmers have a great tradition of improving productivity 
by driving more yield per acre. We are delivering improved seed 
products. We are getting better agronomic knowledge out there. 
We are hardening these crops against pests, diseases, and 
drought events in the marketplace today.
     Since I began my career at Pioneer, we have doubled U.S. 
corn yields on a per acre basis. That is a very important 
number to think about, and we need to look at how we can do 
that again. It has been my opinion that the biggest problem for 
production agriculture in the U.S. has been over-capacity, 
capacity to produce more on a global basis than the world 
needs. I believe society and economics today are challenging 
agriculture to produce whatever we can responsibly.
    So at Pioneer, we have committed throughout the next 10 
years, to add corn and soybean yields on average through the 
use of products by 40 percent. We believe that through the 
materials in our research pipeline, which we have a very good 
view of for the next 10 years, we can add corn yields in the 
U.S. by 40 percent and soybean yields U.S. by 40 percent. Two-
thousand-and-eight is the beginning year, so almost 9 years 
from now, we need to be able to take that forward.
    So if you look at a baseline corn yield of about 160 
bushels per acre in the United States today, 40 percent would 
take us to about 225 bushels per acre. We are doing this 
through research and science, through improving the native 
germplasm, through molecular breeding, through bringing in 
specific genes into the corn and soybean genome to help us 
bring unique traits to those. We will also be improving our 
inputs so we will be able to grow more corn, more soybeans with 
less water, and another very important target is nitrogen 
utilization, as well.
    We believe that investments in research, both public and 
private, strong intellectual property protection to promote 
agriculture innovations, and an economic climate that allows 
our farmers to invest, as we talked about this morning earlier, 
will drive these results.
    Unfortunately, much of the rest of the world is working at 
an agricultural productivity much below the United States, in 
some cases only about 20 percent of the productivity on a per 
acre per hectare basis as we see in the U.S. That does mean, 
however, that there is great potential for global expansion in 
agricultural productivity. There certainly are barriers that we 
need to overcome to move forward around the globe, such as 
access to credit, improved access to agronomic knowledge and 
information, as well as secure land tenure. It will take 
private investment, public research and public policy to make 
strides in these areas and we believe that the U.S. can help in 
a number of ways to be able to take steps in that direction on 
a global basis.
    So talking about crop productivity was my first statement. 
The next statement is around fuel, or biofuel productivity, as 
well. We at Pioneer are very focused on the input side of 
biofuels in agriculture through seed and crop protection 
chemicals, and our parent company, DuPont, is working on the 
next generation of biobutanol and also cellulosic conversion 
methods. So let me just go through the productivity elements 
that we are talking about in the biofuel arena.
    First, we have identified 7 percent variability in the corn 
hybrids we are working with in the amount of ethanol per bushel 
that they produce. So we are working on the top end of that 
range, in that 7 percent of variability in ethanol per bushel. 
We have developed the first assay for grain buyers to measure 
the amount of ethanol directly in a bushel of grain. We have 
developed hybrids with increased fermentable starch and 
improved feeding value of those co-products and we are 
continuing our research in those areas. And we are also 
developing oil seed crops with higher levels of oil and 
modified protein characteristics for improved food, feed, and 
fuel.
    So further down the value chain, then, we are working to 
develop cellulosic conversion, to develop the bugs, the 
microbes that do that conversion efficiently, and we are 
working on the genetics of those bugs to be able to make that 
work much more efficiently than we have been able to do in the 
past.
    And then finally, on the next generation front, we are 
working on biobutanol, a next generation biofuel, also an 
alcohol made in a fermentation process, but it has a different 
set of characteristics that we believe will make it a very 
strong companion with ethanol. Those characteristics include 
being able to--it does not absorb water like ethanol does, so 
we can use existing pipelines. We can make a stronger blend 
ratio in terms of existing vehicles that are out there today. 
We have experimented and had good results up to 16 percent 
blends. It has about the same oxygen concentration as the 10 
percent blends with ethanol. So we believe that this is very 
fundamentally a good companion product to ethanol and are 
working toward commercialization of biobutanol.
    So farmers have a long history of productivity and we 
believe that through the research and the science that we are 
delivering and the economic situation that allows them to 
invest in the production, as we talked about in the first 
measure, will help us accelerate. That 40 percent improvement 
in yields I talked about is more than twice our historic rate 
of genetic gain per year, so it is about twice------
    Chairman Harkin. Forty percent?
    Mr. Oestreich. The 40 percent improvement in corn and 
soybean yields in the next 10 years is a little more than twice 
our historic rate of improvement, if we look at the time period 
as we have talked about earlier. And the reason that we believe 
that we can double our rate of productivity improvement is the 
science and also the economic stimulus that comes with global 
demand increasing that says that we can use agriculture to meet 
needs of society beyond those that we have in the past--food, 
feed, fiber, fuels, and biomaterials for new products.
    So thank you for the opportunity for allowing me to comment 
on this morning and I look forward to working with you in any 
way that we can at DuPont to help this process.
    [The prepared statement of Mr. Oestreich can be found on 
page 95 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Oestreich. Thank 
you. That is probably the most hopeful thing I have heard in a 
long time.
    Now we turn to Dr. Thomas Foust, an internationally 
recognized expert in biofuels, Research Director of the 
Biofuels Research Program at the National Renewable Energy 
Laboratory in Golden, Colorado. Dr. Foust guides and directs 
NREL's biomass conversion technology as well as research areas 
addressing the sustainability of biofuels. Dr. Foust has over 
20 years of research and management experience, including over 
100 publications in bioenergy.
    Dr. Foust, welcome and please proceed.

    STATEMENT OF THOMAS FOUST, BIOFUELS TECHNOLOGY MANAGER, 
     NATIONAL RENEWABLE ENERGY LABORATORY, GOLDEN, COLORADO

    Mr. Foust. Thank you, Chairman Harkin and Senator Nelson. 
Thank you for this opportunity to address this important issue. 
Like you just mentioned, I am the Biofuels Research Director at 
the National Renewable Energy Laboratory, which is the 
Department of Energy's primary laboratory for researching in 
these issues.
    I would just like to build upon what was discussed in the 
first panel. Although there is considerable debate on the 
impact that first generation biofuels are having on food and 
feed prices, the overwhelming consensus is that advanced 
biofuels, or cellulosic biofuels, will greatly lessen any 
impact on food and feed prices. By using non-food resources, 
advanced biofuels avoid any direct competition and provide us a 
good pathway to meet the aggressive RFS goals outlined in the 
Energy Independence and Security Act of what was mentioned, the 
36 billion gallons.
    With that said, let me address the potential of advanced 
biofuels. First, let us start with ethanol. As is well known, 
currently production of ethanol in the U.S. is almost 
exclusively from corn and predominately from the issues 
addressed in the first panel. Although the potential of corn-
based ethanol is very good, ultimately, it is limited for these 
aggressive RFS goals unless we move to advanced biofuels.
    Cellulosic ethanol is really the path over corn food-based 
ethanol by utilizing feedstocks which are abundant and do not 
directly compete with food and feed needs. Fortunately, there 
has been a very robust program in cellulosic ethanol in this 
country that myself and many of my colleagues have been 
involved in and the progress has been good. To put that in 
perspective, the Department of Energy performs a rigorous state 
of technology assessment every year to estimate current 
production costs based on performance of laboratory technology. 
The 2007 results, the most recent results, estimate a 
production cost in the $2.20 to $2.50 per gallon range. So this 
compares very favorably with current corn ethanol and gasoline 
at crude oil and corn prices.
    But I think it is important to be known that this is still 
a pre-commercial state. It is not a mature state of technology, 
so more can be done to secure the long-term competitiveness of 
cellulosic ethanol and make sure this industry prospers, and 
this is the goal of DOE and NREL to achieve this by 2012.
    Like previous panelists mentioned, the volume production of 
cellulosic ethanol is very large, well over 50 percent of 
current gasoline usage and as high as what the previous panel 
mentioned as 90 percent. So therefore, cellulosic ethanol 
should really remain the cornerstone of immediate U.S. 
biofuels, advanced biofuels development. With the continued 
focus on cellulosic ethanol and continued good progress in R&D, 
our nation should soon realize the benefits of advanced 
biofuels technology.
    However, as promising as cellulosic ethanol may be for 
addressing our nation's transportation needs, it does have some 
limitations. Commonly cited is reduced energy content. It does 
absorb water, current pipeline issues. And very importantly, 
ethanol is only suitable as a gasoline replacement. It really 
does not address diesel and jet fuels.
    So I think our current advanced biofuels needs to expand 
beyond ethanol and specific recommendations that I would have 
is, like my previous panelist discussed, butanol, a member of 
the alcohol family, actually higher in energy content and less 
a tendency to absorb water, making it more compatible with the 
fuel infrastructure. It is a good way to go. It is a similar 
fermentation process to ethanol. It does have challenges. It is 
not as far along as ethanol. But because of the long-term 
potential, it should be pursued.
    The other area I would like to mention is thermochemical 
conversion. Although the current cellulosic ethanol program 
does have a major thermochemical component of it, these 
technologies show promise well beyond ethanol. You know, to put 
this in kind of an analogy, if biochemical conversion is the 
elegant method of producing alcohols from certain feedstocks, 
thermochemical conversion is kind of the Swiss army knife 
method of attacking a wide range of feedstocks and producing a 
broader spectrum of fuels. Some of these can produce fuel 
similar to gasoline and diesel, current gasoline and diesel, so 
they are means to lowering the barriers to commercialization.
    Finally, let me address aquatic species, or micro-algae, 
getting a lot of press. These technologies do provide a pathway 
to producing remarkable levels of lipids, ten to 100 times to 
1,000 times current yields per acre of, say, for soybeans, for 
instance, and they do so without impacting the food, feed, and 
chemical infrastructure of the nation. Therefore, they could 
really eliminate--potentially eliminate all food, feed, fuel 
discussions.
    And additionally, bilipids, by their inherent nature, which 
are the oils expressed by these algae, lend themselves to 
higher energy density fuels, such as diesel and jet, so they 
can really expand our spectrum to all fuels.
    Finally, I would like to conclude, but probably most 
importantly with the issue of sustainability of advanced 
biofuels. I think it is known advanced biofuels have clear 
environmental benefits compared to first generation and 
conventional petroleum fuels, such as better energy balance or 
significantly reduced greenhouse gas emissions. Although those 
benefits are significant, I think we really need to study 
sustainability in a comprehensive cradle-to-grave research 
perspective. More understanding is needed about the overall 
life cycle impacts of these fuels in the overall context of 
land, water, and air.
    One sustainability issue particularly relevant to this 
hearing is land use competition. It has really been getting a 
lot of press recently, both direct and indirect land use 
competition, and the role that advanced biofuels will play. The 
degree to which a relationship exists between land use change 
and large-scale biofuels really at the RFS goals we are talking 
about, 30 to 60 billion, needs to be--it is beginning to be 
addressed, but more needs to be done.
    In general, I think it is fair to say that land use changes 
for second generation biofuels will be less extensive than 
first generation biofuels, but it really needs to be understood 
in the context of the continental United States as well as 
global impacts such as Amazon rain forest.
    So let me summarize by saying advanced biofuels are a step 
in the right direction to addressing tomorrow's food, feed, and 
fuel potential. The current successful effort on cellulosic 
ethanol needs to remain on track. However, we really do need to 
expand that and look at these other fuel options, diesel and 
jet. And then we also need to understand the policy options and 
really understand this whole food versus fuel controversy as we 
move into advanced biofuels. Thank you.
    [The prepared statement of Mr. Foust can be found on page 
64 in the appendix.]
    Chairman Harkin. Thank you, Dr. Foust.
    I want to ask you about butanol in a second, but let us 
move on here to Dr. Bruce Dale, Distinguished Professor of 
Chemical Engineering, former Chair of the Department of 
Chemical Engineering at Michigan State University. He has won 
numerous awards in this field. Dr. Dale is interested in the 
environmentally sustainable conversion of plant matter to 
industrial products while still meeting human and animal needs 
for food and feed.
    Dr. Dale, again, welcome to the committee, and again thank 
you, and please proceed.

STATEMENT OF BRUCE DALE, ASSOCIATE DIRECTOR, OFFICE OF BIOBASED 
     TECHNOLOGIES, AND DISTINGUISHED UNIVERSITY PROFESSOR, 
   DEPARTMENT OF CHEMICAL ENGINEERING AND MATERIALS SCIENCE, 
       MICHIGAN STATE UNIVERSITY, EAST LANSING, MICHIGAN

    Mr. Dale. Senator Harkin and Senator Nelson, thank you for 
the invitation to be here. I appreciate the opportunity to 
testify. I have been involved in cellulosic ethanol research 
for 32 years. My laboratory develops technologies to make low-
cost biofuels from our abundant reserves of cellulosic plant 
materials.
    For the last 8 years, I have been involved in life cycle 
analysis and applying life cycle analysis to biofuel 
production. Life cycle analysis deals with the systemwide 
environmental impacts of specific products or processes. It is 
from this background of laboratory research and life cycle 
analysis that I am going to speak to you this morning. My 
opinions are my own and don't reflect any positions on behalf 
of Michigan State University, I was admonished strongly to tell 
you.
    I am going to make and then briefly elaborate on three key 
points. These are as follows: We can, indeed, produce many tens 
of billions of gallons of ethanol and other biofuels from 
cellulosic materials. These biofuels are going to end up being 
a lot less expensive than petroleum fuels. They can also be 
much better for the environment and bring new prosperity to 
rural America if we do them right. Cellulosic biofuels will 
also enhance our national security by ending the strategic role 
of oil and the power of those who control oil.
    No. 2, there was a recent high-profile scientific paper 
that linked corn ethanol to large greenhouse gas emissions due 
to so-called, quote, ``indirect land use changes,'' unquote. 
The paper caused quite a furor. The data and assumptions, 
however, in that paper are not holding up very well to closer 
scrutiny. I believe the paper's conclusions do not currently 
meet standards of either scientific significance or of life 
cycle analysis and should not be used to shape public policy.
    I believe the investments underway will allow us to cost 
effectively convert cellulosic biomass to fuels. A similar 
investment both in size and scope must be made soon in a 
related crucial area. We need to develop a planting, 
harvesting, transportation, storage, and other infrastructure 
that will allow us to sustainably produce and deliver hundreds 
of millions of tons per year of biomass to the bio-refineries.
    We can grow and deliver millions of tons of cellulosic 
biomass for less than $80 per ton. The energy content of 
cellulosic biomass at this price is equal to the energy content 
of oil when oil is about $25 a barrel. If we can efficiently 
convert, therefore, the energy content of cellulosic biomass, 
we can compete well with high-priced oil, very well.
    There is at least $5 billion in public and private funds 
now being devoted to this task, the biofuel conversion task. I 
believe we will succeed much more quickly than most people 
realize. But we have got to stick to our objectives and not 
allow ourselves to be diverted. I have lived long enough to see 
several declarations of energy independence, all of which have 
proved futile, ultimately futile.
    Sustainability is typically described as a three-legged 
stool consisting of economic, social, and environmental 
sustainability. All three legs are important. But I submit also 
that the government of a free people has a fourth crucial leg 
to that sustainability stool. We may call it the national 
security sustainability leg. Therefore, the Energy Independence 
and Security Act of 2007 is rightly named. First and foremost, 
that Act is and ought to be about providing for the common 
defense and promoting the general welfare by ending our near 
total dependence on petroleum for transportation fuels. We have 
got to get off petroleum. We have got to do it.
    I am committed to making sure biofuels are produced in an 
environmentally beneficial manner. Cellulosic biofuels, 
particularly those made from perennial grasses and woody crops, 
are by their nature well suited to provide environmental 
benefits. We need to ensure that the cellulosic biofuels 
deliver on those promised benefits.
    The key is to consider the whole system and then act to 
improve the system's performance. I support the recommendations 
of the Ecological Society of America, which are attached to my 
testimony, to enhance the sustainability of cellulosic 
biofuels. Those recommendations also focus on systemwide 
performance. We have got to stop thinking about pieces of the 
puzzle and think about the whole system.
    However, inadequate and incomplete environmental analysis 
must not be allowed to sidetrack us. Environmental 
sustainability is one, but only one, leg of our sustainability 
stool. That brings me to my second point. A recent high-profile 
paper in the journal Science linked the production of U.S. corn 
ethanol to large greenhouse gas releases caused by land use 
change elsewhere in the world. There are no actual data 
connecting U.S. ethanol production with land use change 
anywhere in the world. All of the conclusions of that paper are 
based on economic modeling. The modeling itself relies on 
assumptions and data that are now being debated by the 
scientific community. I am very involved in that debate.
    The paper is not holding up well to additional scrutiny. 
For example, three different models have now been applied to 
this indirect land use analysis and all three are giving quite 
different results. Obviously, not all three can be correct at 
the same time, so it is unclear what weight to give any of the 
models, since they are all telling us different things, very 
different things.
    The language in the Energy Act of 2007 required that life 
cycle greenhouse gas emissions be determined for significant 
indirect land use change. Proper life cycle analysis followed 
standards set out by the International Standards Organization, 
or ISO. The paper in Science simply does not meet those 
standards. It is completely inadequate in terms of allocation, 
system boundaries, and sensitivity analysis among other 
technical life cycle issues. Therefore, until the scientific 
community is able to come to some consensus about the validity 
of the conclusions, the paper's conclusions cannot be regarded 
as scientifically significant.
    Even if there were scientifically significant life cycle 
research linking corn ethanol to indirect land use change, it 
seems to me that making U.S. farmers responsible for land use 
decisions made by others is both unfair and a terrible 
precedent. Are we going to make every U.S. industry responsible 
for greenhouse gas generation by its competitors around the 
world? That is exactly what we are doing to U.S. corn growers 
through the indirect land use change issue.
    The furor over indirect land use change offers one of the 
best recent examples of what I mean by not allowing ourselves 
to be diverted from our goal of ending the strategic role of 
oil in the world. All biofuels, not just corn ethanol, have 
been set back by that single paper that does not meet standards 
either of scientific significance or of life cycle analysis.
    Third, I want to talk briefly about logistical issues. The 
cellulosic biofuels industry will consist of two parts, one, 
growing and transporting the biomass to the bio-refinery, and 
two, processing the crop to biofuels. While more can and should 
be done, I think we are largely addressing the biomass 
processing issues, but we are not doing anywhere near enough to 
address the logistical issues connected with cellulosic 
biofuels.
    If current trends continue, we may very well find ourselves 
with excellent bio-refineries but without the means to supply 
the bio-refineries with the raw materials they require. We need 
integrated systemwide research and development on how to grow, 
harvest, store, and transport cellulosic biomass to the bio-
refinery. The research should include studies to improve the 
environmental sustainability of both corn and cellulosic 
biofuels. For example, integrating cover and companion crops 
with corn agriculture will do much to enhance corn's 
environmental performance. Cover crops could provide an 
additional source of cellulosic biomass to the bio-refinery as 
well as high-value animal feed protein.
    Cellulosic biomass sustainability research could and should 
teach us how to grow energy crops that sequester carbon in the 
soil, enhance biodiversity, reduce erosion, use nitrogen and 
other nutrients efficiently, and improve the water-holding 
capacity of soil. We should develop and reward approaches that 
enhance the environmental performance of the entire linked 
system of crop production, biofuel production, and animal 
feeding.
    We should also find ways to strengthen rural communities as 
we develop the cellulosic biofuels industry. For example, 
cellulosic biomass is inherently bulky and difficult to 
transport. Regional biomass processing centers, perhaps owned 
by farmer co-ops, could pretreat and densify biomass for both 
animal feed and biofuel production. Similar regional processing 
could convert cellulosic biomass to liquid bio-oils for 
subsequent upgrading to fuels. These regional processing 
centers could provide a way for farmers and farming communities 
to capture more of the value added to their crops and general 
rural employment.
    I believe the Senate Agriculture Committee should take a 
leading role to ensure that we develop the logistics for the 
cellulosic biofuels industry while improving the environmental 
and the social sustainability of all biofuels. This effort 
deserves a funding level comparable to the billions now being 
devoted to bio-refinery development. It is just as important, 
if not more important.
    Finally, Senator Harkin, I understand that you will soon 
introduce legislation requiring all new cars sold in the U.S. 
to be flex fuel. I enthusiastically support such legislation. I 
also encourage you and the other committee members to cosponsor 
and then pass S. 3303, the Open Fuel Standards Act. Taken 
together, flex fuel legislation and open fuel standards will 
help provide true fuel choice. When the American car owner has 
fuel choice, so will the car owners of the world. When we have 
fuel choice and inexpensive, sustainable biofuels, we will have 
ended the power of those who control oil.
    Thanks. I look forward to discussion, Senator.
    [The prepared statement of Mr. Dale can be found on page 55 
in the appendix.]
    Chairman Harkin. Thank you.
    Our final panelist today is Dr. Stephen DiMagno, and he is 
Professor of Chemistry at the University of Nebraska at 
Lincoln. His research interests include chemical catalysis, 
energy storage, and the use of bio-derived materials for fine 
chemical synthesis. I know he is going to explain to us what 
all that means. Thank you.

    STATEMENT OF STEPHEN DIMAGNO, PROFESSOR, UNIVERSITY OF 
              NEBRASKA-LINCOLN, LINCOLN, NEBRASKA

    Mr. DiMagno. Mr. Chairman, Senator Nelson, thank you very 
much. I appreciate the opportunity to speak on behalf of the 
University of Nebraska about opportunities for energy research 
in general and in particular about those opportunities that 
have the greatest potential impact for the Midwest and the 
State of Nebraska, namely biofuels and windpower as it relates 
to the production of liquid fuels.
    Excepting nuclear and tidal power, all energy used on the 
planet is energy of captured sunlight. Fossil fuels that we use 
today are the result of sunlight captured and stored as 
chemical energy by photosynthesis and carbon dioxide fixation 
reactions carried out over the course of millions of years. We 
use these fossil fuels in huge quantities, largely because 
historically, they have proven to be the least expensive means 
to generate energy in large scale, though the------
    Chairman Harkin. Pull the microphone a little closer to 
you. Just pull it closer.
    Mr. DiMagno [continuing]. In large scale--excuse me--though 
the increased economic, political, and environmental costs of 
fossil fuel combustion are now matters of serious concern. 
Though it took nature millions of years to capture sunlight and 
accumulate the fossil fuel resources we burn today, the amount 
of energy actually contained in the sunlight hitting the 
earth's surface is immense. One hour of sunlight is equivalent 
to the amount of energy used on the planet in 1 year.
    The good news is that the energy to solve our problems is 
in our backyard. If efficient or even relatively inefficient 
methods are found to capture, store, and transport a small 
amount of the sun's energy in biofuels, great progress will be 
made toward a sustainable energy future.
    The vast majority of petroleum is consumed as liquid 
transportation fuel. Thus, the challenge to replace imported 
petroleum lies in developing viable biofuels. Biofuels that are 
of importance to Nebraska include green ethanol, cellulosic 
ethanol, and biodiesel.
    Green ethanol production is already a relatively mature 
large-scale industry for the Midwest. Nevertheless, there are 
many opportunities in research to improve the efficiency of 
green ethanol production. Improved efficiencies in the 
transport and use of raw materials and fermentation co-
products, integration of ethanol production into cattle feeding 
operations, methods to increase distillation efficiency in 
ethanol separation, and the use of clean ethanol and/or clean 
carbon dioxide produced as precursors for value-added products 
are all areas of active research at the University of Nebraska.
    In order to meet future mandates for fuel ethanol, the 
conversion of cellulose biomass to ethanol will be required. 
Research on several important problems will be essential if 
cellulosic ethanol is to become a viable biofuel option. These 
include efficient raw materials, harvesting and transport, 
engineering of crops to make the cellulose easier to degrade 
and process, biomass pretreatment and cellulose extraction, and 
improved production and performance of organisms and 
glycosidase enzymes that convert cellulose to simple sugars for 
fermentation. If these issues are addressed satisfactorily, 
Nebraska will be able to use its existing ethanol 
infrastructure for the fermentation and distillation of fuel-
grade ethanol from biomass.
    Research is also needed to boost the production of 
biodiesel, a biofuel derived from transesterified plant oils or 
animal fats. The production of biodiesel from ethanol and 
vegetable oil is a relatively straightforward process, though 
there is still room for improvement for water tolerant 
transesterification catalysts.
    The largest concern in the biodiesel area is the 
availability of sufficient quantities of inexpensive vegetable 
oil. Soybean production is on the order of 50 gallons per acre 
of oil, while approximately 20 gallons of oil are obtained per 
acre of corn. Further efficiencies in plant oil production are 
necessary if biodiesel is to be competitive and a high-volume 
source of transportation fuel.
    Algae are a potentially large-scale source of inexpensive 
plant oils, as we heard earlier. Algae are perhaps the most 
effective photosynthetic organisms for generating biomass from 
sunlight. Along with affiliates at several premier institutions 
across the United States, the Algal Biofuels Consortium based 
at the University of Nebraska is developing the biology, 
genetic and metabolic engineering and processing of algae for 
advanced biofuels. Despite the great promise of algae, 
naturally occurring species do not appear to have all the 
characteristics necessary for algae to be fully economical and 
a viable biofuel source. For algae to achieve full potential, 
the ability to genetically and metabolically modify the 
organisms will be critical.
    The direct conversion of wind power into electricity is a 
relatively inexpensive, reasonably efficient means to capture 
renewable energy, as is evident by the large increase in wind 
turbine construction throughout the Midwest. Where a 
transmission infrastructure is in place, as it is in the 
Ainsworth Corridor, for example, a direct feed of electrical 
energy into the power grid is the most efficient means to 
capture wind energy. However, if power is generated in a widely 
distributed fashion on farms and rural communities, storage of 
captured wind power is desirable. Direct conversion of 
electricity to hydrogen or liquid fuels for energy storage is 
essential in these settings.
    In conclusion, there are many areas of energy sciences 
which are ripe for research and in which the University of 
Nebraska has an ongoing research program. I have outlined a few 
of these programs here today and there are others I did not 
have time to mention. There is still much work to be done, but 
the good news is that though the scale of the energy problem 
facing us is large, there is a truly vast amount of energy 
available for our use if we can find the means to use it 
efficiently.
    Thank you very much for the invitation to appear and I 
would be happy to answer any questions.
    [The prepared statement of Mr. DiMagno can be found on page 
61 in the appendix.]
    Chairman Harkin. Thank you very much, Dr. DiMagno. Thank 
you all.
    Again, this is looking ahead. Mr. Oestreich, I will just 
start with you. The 40 percent increase that you mentioned in 
the next 10 years in corn yields, soybean yields, how much 
confidence can we have in that?
    Mr. Oestreich. Again, I will go back to that. Sometimes in 
the corporate world, we have these lofty goals to reach out to 
some aspirational place. This 40 percent improvement goal in 
the next 10 years is not an aspirational goal but it is rather 
one that is added up by looking at our pipeline that is in the 
research today. So it is trait by trait, material by material. 
The progress that we have been making today in our research is 
faster than we have ever seen it before. The science is 
incredible. The tools of biotechnology are helping us 
accelerate our research and do a lot more precise work on these 
plants. It has helped us develop a deeper knowledge of how 
plants work and how to improve them.
    You know, a lot of society understands biotechnologies as 
GMOs. That is one element, and it is an important element going 
forward and we will see more traits and more transgenes in the 
future at an accelerated rate than ever before. But the 
additional element of biotechnology that is helping us equally 
is the fact that the knowledge of the plants, the 
understanding, the tools of biotechnology are helping us in 
some cases to drive parts of our research 1,000 times faster 
than we have been able to do it before.
    So I started my career as a corn breeder and I have done 
this sort of work for about 12 years in my career. The tools 
that our corn breeders and our soybean breeders and our 
biotechnologists are working with today are just incredible and 
those are the things that are driving that accelerated 
productivity growth rate that I am talking about. So it is a 
plan and not just an aspiration.
    Chairman Harkin. Well, that raises the confidence level 
quite a bit.
    Second, you are talking about productivity of corn and 
soybeans. I am also told that a lot of research is being done, 
and I assume by you, by DuPont, others, in as the corn yield 
goes up from the ear of corn itself, that research is being 
done into how you increase also the cellulosic content of the 
stalk itself. Could you address yourself to that?
    Mr. Oestreich. We are doing work to characterize our stalks 
and the materials that are left after the grain harvest. I will 
tell you that our long-term experience in working with silage 
for animal feeding is helpful around thinking about the 
cellulosic work.
    The other thing that I think is changing over time and 
decades is that plant populations are increasing. We see plant 
populations increasing, so more plants per acre, meaning more 
biological material on the ground. We see that increasing at 
about 1 percent annual gains for the last 35 years. So when I 
started my career, an average corn population in Iowa or 
Nebraska would have been about 22,000 plants per acre.
    Chairman Harkin. How much?
    Mr. Oestreich. About 22,000 plants per acre.
    Chairman Harkin. Yes.
    Mr. Oestreich. Today, it would be more like 32,000 plants 
per acre. So we have more density of those materials out there 
and we are looking at how we might improve the efficiency of 
that byproduct use of the stubble and the cornstalks and the 
corn cobs, as we talked about today.
    But I will also tell you that for plant breeders, No. 1 has 
to be yield of grain. No. 1 also has to be strong agronomics, 
disease resistance, growth under different environments, things 
like drought tolerance, nitrogen utilization. And another 
characteristic that we are working on is the amount of 
cellulosic ethanol or biobutanol in a corn stalk or a corn cob.
    Chairman Harkin. Well, I guess closely related to that is 
if we are going to increase this productivity, how much of it 
depends on greater utilization of resources--water, fertilizer, 
chemicals? Can we achieve this increased productivity without 
compromising our soil and water and other resources?
    Mr. Oestreich. I will give you an example. On our nitrogen 
utilization project, our goal of that project, which we believe 
will start to commercialize by mid-next decade, will be to 
allow a farmer to grow the same yields as today under 20 
percent less nitrogen, or 20 percent higher yields under the 
current utilization of nitrogen. So improved nitrogen 
efficiency for a bushel of grain produced.
    Drought tolerance, of course, the same targets, right? We 
need to be able to protect those plants better under those 
drought events and therefore use less water, or in some cases 
if you are working in an irrigated environment--I was talking 
to some farmers in Southwestern Kansas last week. It is very 
much on their minds. They have limited irrigation capability. 
They want hybrids that can yield equal to today or more than 
today with less water, and we believe we will be able to do 
that.
    Chairman Harkin. Dr. Foust, do you expect thermo-chemical 
biofuels to achieve the same cost goals as DOE projects for 
cellulosic ethanol?
    Mr. Foust. That is a good question. We set the target--to 
answer your question, yes, because we set the target, the 2012 
target, based on a market target which is $1.33 a gallon, which 
is benchmarked at the sixty-five a barrel crude, gasoline from 
sixty-five dollars, so that is our R&D target.
    But to answer your question kind of more elaborately, right 
now, based on our state of technologies, thermochemical is 
actually the lower-cost option. I think that is why you see----
--
    Chairman Harkin. Thermochemical is lower now?
    Mr. Foust. Yes, thermochemical compared to biochemical 
fermentation of ethanol, more of your traditional enzymatic 
hydrolysis fermentation. And I think the reason that is, is 
because of a more mature state of technology. Gasification has 
been around. It is just essentially a form of combustion. It 
has been around for 50 years And then syngas synthesis to 
fuels, again is a technology that has been around since World 
War II. The challenge is taking biomass gasification and then 
sinking that up with fuel synthesis.
    But if you actually look at the commercial plants that are 
being deployed--I reflect that in my written testimony--over 
half of those are actually thermochemical. So right now, if you 
were to go out and build a plant today, with today's 
technology, it is actually the lower-cost option. But we do 
believe that the potential for biochem in the long term, since 
it is more efficient, to be better.
    Chairman Harkin. Senator Nelson?
    Senator Nelson. This goes to anyone who would like to 
respond to it. Do you have any idea how long, and the ballpark 
would work, that it will take for the research and development 
necessary to provide a commercially viable product for the 
second generation for cellulosic material, whether it is corn 
chips, the other corn products, or some other cellulosic 
material? Do we have any idea about what we are looking at? I 
think some of it may be faster than other parts of it, but I 
would kind of like to get an idea of what we are facing.
    Mr. Dale. Yes, I would like to address that, if I may. I 
believe we will have our first billion gallons a year of 
ethanol capacity from cellulosic materials within about 5 
years, and I think at about that time, the technology will be 
sufficiently understood, sufficiently mature, the risk taken 
out of it far enough that it will become very attractive for 
Wall Street investment, and at that point, you will see the lid 
blow off, and it will be a matter of how fast can we build the 
plants and how fast can we supply them with the raw material, 
which is why I am really concerned that our logistics, our 
infrastructure be ready at that time. But that is how I see 
it------
    Senator Nelson. So the infrastructure side of it might slow 
us down, not the research and development or the scientific 
processes for conversion, is that fair?
    Mr. Dale. The characteristic of large-scale processing 
industries is that 30 percent of the overall cost to make 
something is the processing cost. Seventy percent is the raw 
material cost. That is where we are with oil right now. Right 
now, that ratio is pretty much reversed for cellulosic biofuel, 
so our effort is to drive down the processing cost. As I said, 
we are investing at least $5 billion to do that. I think we are 
going to succeed more quickly than people realize.
    And so within a fairly short period of time, five, no more 
than 10 years, I think we will have the cost of processing 
largely reduced. We will have good processes that are ready for 
investment, large-scale investment. And then we will have to 
make sure that we can get hundreds of millions of tons of plant 
material to these facilities.
    Senator Nelson. Well, might it be safe to say that the 
conversion capability for switchgrass can be developed faster 
than we can get the production of switchgrass out into the 
fields, suitable fields across the Midwest, for example? Is 
that part of the problem?
    Mr. Dale. I think that is true. Who is going to pay the 
farmer to grow it? He is not going to plant it until you have 
got a market. Who is going to process it? How is it going to be 
assembled? All those logistical issues are really important.
    Also, I would just like to--sorry if I am beating something 
over and over again, but I don't think--unless our rural 
communities are able to add some value to the cellulosic 
material before it leaves their area, I don't think they will 
do very well economically. They will just be suppliers of low-
cost commodity, grass or hay or whatever. We need to find ways 
to add value locally, perhaps by some sort of a distributed 
processing, so that the plant material, some of the value added 
can be captured locally. Otherwise, I don't think our rural 
communities will prosper like they could have unless we are 
ready to do that.
    Senator Nelson. Well, we are faced with the chicken or the 
egg and we need the chicken and the egg at the same time, 
pretty hard to do in this business, though, isn't it?
    Mr. Dale. You have got to do both. You have to have the 
chicken and the egg------
    Senator Nelson. Yes, that is what we have to do. Is there 
any estimate as to what might be the finite limit of cellulosic 
material for the production of ethanol or butanol?
    Mr. Dale. Do you want to try, Tom? I have been talking a 
while.
    Senator Nelson. In other words, I mean, there are all kinds 
of different types of cellulosic material being talked about, 
but is there some limit to what we can produce in the way of 
the final product as an additive or as a regular fuel?
    Mr. Oestreich. I think we heard earlier in the first panel 
that there is a blenders limit that we talked about with the 
current infrastructure today of the vehicles on the road.
    The plant materials that are available on a global basis 
are very large. We talked earlier about, from POET, I think, 
five billion gallons from corn cobs alone. I believe we can use 
about half of the corn stalks, as well as the cobs. The 
forestry products that are out there, the waste that comes from 
paper milling and others and some of the landfill materials, 
there are huge amounts of biomaterials that are available with 
efficient systems that we need to continue to increase 
investment in cellulosic research, both public and private, to 
move forward to accelerate.
    We will, I agree, fully reach the targets that were laid 
out just a minute ago, but there will be productivity gains 
needed in logistics, in processing, in the microbes that go 
into the system. You think about ethanol, improvements that 
have been made in the last two or 3 years through corn yields, 
through improvement in processing, through less water 
utilization. This is an industry that is 30 years old. So 
productivity is an invested tool that we need over time and 
that will occur with cellulose, as well.
    Senator Nelson. Any other thoughts?
    Mr. Foust. I would just echo what was said to that regard. 
You know, the one limitation that we do see is a logistics 
limitation. I think by the feedstock surveys that have been 
done, there is a potential, as referred to in the earlier 
panel, of producing well over a billion tons. It was actually 
1.3 billion tons. And then if you just do a thumb-roll 
conversion, that comes up to 80, 90 billion gallons of ethanol 
by mid-next century. So there is almost an unlimited potential 
there. However, it is vehicle use, it is distribution. We heard 
about the blend wall. Clearly, a 10-percent market stops at 14 
billion. I think, like Dr. Dale said, flex fuel vehicles will 
help. It is moving into the alternative biofuels so we can look 
at other transportation options will greatly help the 
situation.
    But I think right now, if we keep on going the way we are, 
we are going to be in a stairstep fashion. We produce the 
biofuels until there is a glut. Prices fall off. Growth slows. 
Legislation, policy, incentivizing in other places in the 
market, and so we have this kind of continuous growth. The more 
futuristic that we look at the whole path forward and try to 
eliminate the downtimes in the market would be better for the 
long-term accelerated growth of biofuels.
    Mr. Dale. I guess I would like to add a little bit more, if 
I may. I believe that there is no effective upper limit to the 
amount of cellulosic biofuels we can make. We have the land. We 
have the crop production technology. We can do this. It is at 
least 100 billion gallons a year and upwards of there.
    It is more a matter--for one problem--this has been 
mentioned earlier--the agricultural problem has not been lack 
of ability to produce. It has been over-production. We finally 
now have a demand because of rising oil prices. We finally have 
a demand for the output of agriculture that is equal to our 
appetite for something. We have finite, limited stomachs. But 
how much we would like to travel, and I think it is an 
opportunity for a new era of prosperity for agriculture because 
we will be able to produce, particularly cellulosic materials, 
that are sustainable, that we can grow here in our own country 
and convert here, end the rule of oil in the world, and provide 
essentially all the transportation fuels we need.
    Senator Nelson. You know, the interesting thing is there is 
a report that one of the oil producing countries in the world 
is fast experimenting on a fast track basis for alternative 
fuels in anticipation that someday their finite quantities of 
oil will be unavailable or that it will be more profitable for 
them to have their alternative fuels for their own use and sell 
the oil to the world market. So I think it is interesting that 
all of us are now focused on how we move away from a strictly 
oil-based economy.
    Another matter of interest is an ethanol plant up in Dakota 
City is located close to a landfill and they pipe methanol 
from--natural methanol coming out of a landfill, which 
provides, I think, they said, about 15 to 20 percent of their 
energy for the production of ethanol.
    So when we talk about the utilization of cellulosic 
material to produce, whether it is butanol or methanol or in 
this case for overall for ethanol, we are going to be limited 
by cost-effective methods of extracting it, and to the extent 
that we get economies of scale, better methods, more cost 
effectively accessing, we are really--our limit is finding a 
cost-effective way to do almost anything that we want to do in 
the world to begin with, but particularly in this area.
    And there is some point where we will drive down the cost 
where the question is, will we still be able to have 
profitability. I would hope so. Is there a danger of losing 
profitability in this business?
    Mr. Foust. Oh, I mean, very much so, just for the reasons 
we echoed. You know, in any commodity industry, obviously 
profitability is based on the margins, and clearly we saw that 
last year with corn prices high and a bit of an over-saturation 
of the market.
    The projections we have done at our laboratory do show that 
there will be, and I think you have seen it in the corn 
ethanol, phenomenal growth over the last couple years tapered 
off with growth now over the next couple years projections 
based on decreased profitability. Most likely we will see that 
in the cellulosic ethanol industry, too. I think that was--I 
don't know if it is completely possible to prevent that per se, 
but I think forward reaching policies and incentives, kind of 
like Dr. Dale was talking about, vehicles and making sure that 
there is a market and there is a growth and public perception 
issues about ethanol and all those issues, sustainability, all 
those really need to be addressed. None of them guarantee that 
you won't have the natural cycles of the market, but they can 
dampen them out.
    Mr. Dale. I would also just say, as I said in my testimony, 
if the farmers of this country and the people in the forest 
business, if they are just supplying a commodity material, 
cellulosic biomass, without adding any value to it, then they 
are going to be subject to this type of cycle. So we need to 
think ahead about the technologies and the policies and the 
business structures that would allow us, allow farming 
communities to add value to the biomass before it leaves their 
area so that more of that wealth stays there locally and they 
are more insulated from commodity cycles.
    I believe as a chemical engineer, the whole history of 
developing things by chemical processing is once you have 
material together in one spot, you process it. You learn how to 
do more with it. And if we can add some value locally, we can 
start thinking about these regional biomass processing centers, 
as I call them, as a vehicle for local economic growth because 
you will continue to get more and more value, not just out of a 
bushel of corn, but now out of a barrel of biomass, you know, a 
ton of hay or grass. It is just the natural way things occur. 
But we need to set it up now. We need to think ahead and do 
this now.
    It is said that at the beginning of the Oregon Trail back 
in St. Louis years ago, there was a little sign that said, 
``Choose your ruts carefully. You will be in them for the next 
1,000 miles.'' OK. We are at the point now of choosing the kind 
of ruts we want to, quote-unquote, ruts we want our society to 
be in for the next 100 years.
    I think if we are wise and think ahead about the kind of 
industry we want to base on cellulosic biomass or renewable 
plant material, we can really construct a future that looks 
quite a bit different and quite a bit better than what we have 
now. But we need to think about it and think it through. We can 
have it add value to local communities. We can have it be much 
more environmentally friendly. But we have got to think about 
that now and make sure it happens now, because otherwise we 
will set in place an industry that will be what it is. It won't 
necessarily have the properties that we want it to have.
    Chairman Harkin. Well, I see our time has about run out. I 
again want to thank all of you. I think what I have heard from 
this panel is that the future is very good. It looks very good 
for the production of liquid fuels for transportation that we 
can make from renewable resources grown in this country. That 
the increases in productivity that we are looking at, and the 
use of cellulosic materials that can grow in areas that we 
aren't cropping right now, including wood wastes and grasses, 
provide perhaps not unlimited potential, but the potential to 
replace most of our liquid fuels like gasoline with some form 
of ethanol or one of the other ``nols'', with butanol or 
something like that, or biodiesel.
    Now, we haven't even talked about algae and the promise of 
algae-based lipids for diesel. I have heard numbers, for 
example, that when you are looking at corn ethanol, you are 
looking at around maybe 400 to 500 gallons per acre per year, 
somewhere in that range. If you are looking at switchgrass from 
acanthus, you are looking at anywhere from 700 to 1,500 
gallons, depending upon yields and all that kind of thing. But 
I have heard figures, and not only heard figures, I have been 
told by some companies that are investing private resources 
into algae-based diesel production that they can get up to 
15,000 gallons of diesel fuel per acre per year from algae, and 
all that algae takes is CO2 and sunlight.
    So I don't know where we are on that, but I know there is a 
lot of research going on. So if you add that, and you add that 
to the cellulose, the grain-based alcohols that we can make in 
terms of liquid fuels, it looks like we have indeed a future in 
this country where, as Senator Nelson said, we can actually 
become fairly self-sufficient. I don't know if we can in our 
lifetimes, probably not in mine, that we can do away with all 
of the need for oil, but we can make oil more of a residual 
kind of commodity that we might need for certain applications, 
but that we can rely upon our renewable resources and fuels, to 
meet our fundamental needs in this country.
    We haven't even talked about the other renewable energy 
resources, like wind and solar and all those other technologies 
that might focus more on the production of energy in the form 
of electricity rather than liquid fuels.
    So I think that we are going through a time of change, let 
us face it, in agriculture, of big changes, and there are going 
to be some discontinuities. There are going to be some upsets. 
I keep hearkening back to when we went from horses to 
mechanization. I am sure that for all the harness makers and 
the saddle makers and the horseshoe makers and everybody else, 
this was very disruptive.
    Or when we went from candles to electric lights. We didn't 
go to electric lights because we ran out of wax. We had new 
technologies, and we have new technologies at our fingertips 
now, the corn genome, for example, and all the things that we 
can do that we have never had the technological base to do in 
the past.
    So I just think that we are going to have to get through 
this period as best we can, be sensitive to the kind of needs 
that are out there. We are all sensitive to food prices and 
fuel prices and what this means to family budgets. We are 
especially sensitive to this in our areas, Ben, because people 
here have to drive long distances. We don't have mass transit 
in our areas. Folks have got to go to school. School buses go 
long distances. People have to drive long distances just to get 
to their jobs. We are particularly sensitive to the impact on 
our consumers in this area.
    So I hope with the proper Federal policies at our level, 
plus the proper input from the private sector, that the two can 
marry up and get us through this period of time without too 
many upsets. And I think once we start getting through this 
period and we see our way clear and we start producing more of 
these renewable fuels, then I think a lot of this uncertainty 
will settle down and we will then be on a nice pathway in our 
country to becoming more energy independent and still have the 
necessary food at a reasonable price for all of our consumers.
    Senator Nelson. I remain confident that we can do it, if 
for no other reason, Senator Schmidt preceded me in working on 
was called gasohol at the time, and in 1991 when I became 
Governor, we had one ethanol plant producing ten million 
gallons. Governor Branstad and I joined forces with others and 
we continued to push for the development of ethanol, hanging 
onto favorable tax treatment against the odds, and we did it at 
the time when the price at the pump for gasoline was modest by 
comparison to today.
    And if we could make the progress that we have made in the 
midst of that environment, economic environment, we ought to be 
able to accelerate the effort in this economic environment 
today where the need is totally recognized. Back in the early 
1990's, it was sort of a way to help agriculture and better for 
the air and we talked about less reliance on foreign sources of 
oil. The progress has been fairly significant, but modest by 
comparison to the progress we need to ultimately make. But I 
remain confident that we can do it as long as we remain 
sensitive to the unintended consequences as well as the 
intended consequences and push in all the directions that we 
have got available to us.
    So thank you, Mr. Chairman. It was great to have you here.
    Chairman Harkin. Well, thank you, Senator Nelson, for 
having us at the University of Nebraska at Omaha. Thank you to 
all of our panelists. Thank you to all of our people who have 
come here.
    The committee will stand adjourned subject to a call of the 
Chair. Thank you all.
    [Whereupon, at 12 p.m., the committee was adjourned.]
      
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                            A P P E N D I X

                            August 18, 2008



      
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                   DOCUMENTS SUBMITTED FOR THE RECORD

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                         QUESTIONS AND ANSWERS

                            August 18, 2008



      
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