Radnor Inc

Radnor Geopolitical Report

Washington, October 2007



Strategic geopolitical intelligence for decision-makers





About Radnor

Radnor is a legislative relations and political consulting firm based in Washington, D.C. Radnor has affiliations across the world that allow us to accomplish our clients' objectives. We work with some of the largest businesses in the world as well as some of the smallest entrepreneurial firms and groups.

Radnor services fall into three areas:

1. Government relations services throughout the world.

2. Political counsel to candidates, parties and businesses.

3. Association and coalition management.

To learn more, please visit our web site.





Periodically, Radnor invites others to share their thoughts with our readers. We often agree but sometimes disagree with what our guests write. Nevertheless, we are always glad to learn. If you have something you would like our readers to know about, please email us.





Trading ethanol for water

by Ken Feltman

By polluting clear water with slime you will never find good drinking water.

- Aeschylus

The supporters of ethanol are a feisty lot. They let me have it after my August article in which I pointed out that production of ethanol was causing the price of corn to rise and, among other things, driving up the cost of tortillas in Mexico. Some Mexicans were unable to feed their families and demonstrators filled Mexican plazas to protest the high price of corn. An attorney for a major oil company wrote to me: "I suggest that you confine yourself to facts, not the hysteria about starving Mexicans." A farmer in Iowa wrote: "Finally, I get money out of a government program. You cannot expect me to turn my back. It is my turn."

Here is what I wrote: "As the U.S. rushed to produce ethanol last year, the price of corn rose rapidly from just over $2 a bushel in August to over $3 by December. Some of the increase was seasonal but by January angry Mexicans demonstrated in the streets against the rising cost of tortillas, the staple of the diet for most Mexicans. The price of corn translates much more directly to higher food costs for low income Mexicans. From a quarter to half of their income may go to feeding the family. The average American spends about seven or eight percent for food.

?In a global economy any change in production or pricing by a large supplier will affect the weakest consumers most. The protesting Mexicans were part of a debate that went under reported in the U.S. but involved Cuba?s Fidel Castro and Venezuela?s Hugo Chávez, who charged that the U.S. was starving the poor to 'feed automobiles.' The higher price of tortillas is linked to American corn that is diverted to fuel. "

Here is a recent fact: This growing season, corn sold for over $4 a bushel - up from $3 when the Mexican demonstrations occurred. Nothing can change that fact. Rising corn prices have created a crisis for many in Mexico and elsewhere.

The farmer's email is even sadder. Behind the words may be his frustration at what he may perceive as years of government programs that seem to throw money at other people and other programs, to little effect. Finally, the farmer has his piece of the action and he is as happy as a pig in - uh, pork. A bad idea when applied to someone else does not become a good idea when applied to you. Pork in the guise of energy independence or cleaner air is still pork.

What started the fuss?

After earlier Radnor Geopolitical Reports about the impact of ethanol production on the price of fuel at the pump and the price of corn in the marketplace, a few reporters contacted Radnor. Among other media, the Washington Post and PBS summarized the good times that ethanol subsidies are bringing to grain farmers and pointed out that many farmers have switched from other crops to corn for ethanol, thus creating other dislocations in food production.

The Post quoted three senators - one from Indiana, another from Illinois and a third from Iowa - who questioned the wisdom of the current subsidies. These senators (two Democrats and a Republican) are in the heart of the corn belt and have been subjected to constituent pressure to support ethanol subsidies.

Just as the media are reporting that Senator Clinton is the prohibitive favorite to win the Democratic presidential nomination, Radnor's Decision-Maker Research shows that rank-and-file Democrats are giving Clinton a second look. This is a normal part of the process as voters commit.

Clinton needs to be careful not to make mistakes on the campaign trail while she is receiving this final scrutiny. Perhaps this is her last high hurdle.

Republican voters are also taking another look at Senator McCain. Expect McCain to rise further in the polls. Then, depending on his skills and possible mistakes by Giuliani, Romney and Thompson, we will know whether McCain can become a viable candidate again.

An executive of a biofuels company reacted to these statements: ?Even with a plentiful supply, ethanol will not put downward pressure on gas prices because ethanol costs more to produce than we pay at the pump. Because of government incentives, consumers pay twice for ethanol - when they fill up and when they send off their tax return. Last year, ethanol makers and sellers received subsidies of about $1.87 for every gallon of gasoline that ethanol replaced.

?The subsidies do not end there. They do, however, become more illogical. Auto manufacturers receive subsidies to produce ethanol-consuming cars. Then they are rewarded for producing those ethanol-consuming cars: They get to produce other vehicles that are less fuel efficient than prevailing standards. How perverse! These twin government programs are expected to increase the amount of oil that we consume annually by about 200,000 gallons a day by 2015 - about what we import from Kuwait.?

The biofuels executive did not challenge what I wrote. Instead, he suggested that I "change the subject before you become roadkill." He's going to run me over?

He concluded: "Other countries like China have a bigger problem." Should we feel better because China has a more pressing problem?

Just as we have, China has made some bad choices. In a world connected by trade routes and trade winds, the production of one product affects the production of other products and the consequences of bad choices are shared by everyone. We suffer the consequences with tainted pet food and toxic toys.

As China scours the world for oil, natural gas and minerals to keep its economy humming, it consumes more and more of its stored water. (We are doing the same thing, especially in the West.) Securing new sources of oil or gas cannot change the fact that China uses five times the water today that it used six decades ago. A booming population, industry and farming compete for a finite water supply.

Streams with bridges but no water

Wary of depending on imports, China has long insisted on grain self-sufficiency. Growing all that grain consumes huge amounts of underground water in the North China Plain, which produces half of China's wheat. Roughly five-sixths of the wetlands have dried up, according to one study. Scientists say that most natural streams or creeks have disappeared. Several rivers that once were navigable are now mostly dust. The largest natural freshwater lake in northern China is contracting and polluted.

The region, home to over 200 million and growing rapidly, is now a center for industry as well as agriculture. Because of inefficient methods, industries in China use three to ten times more water, depending on the product, than similar industries in developed nations. The aquifers cannot handle the stress of serving all masters and may be dry in 30 years at the current rate of consumption. The livelihoods of millions of farmers and millions of factory workers depend on that dwindling water supply.

The Chinese situation sounds somewhat like the situation in the U.S. but more urgent. Rice requires a lot of water. So does corn. So if you are not convinced by the plight of Mexicans and Chinese, think about the possible plight of Americans. We are consuming water to produce biofuels in the Midwest as we are running low on water in the West. As we run low on water, food production suffers. Here are some disquieting facts:

  • Analysis of tree rings reveals that the 20th century was the wettest ever in some parts of the American West devoted to agriculture. Will the West revert to the previous norm or will wetter-than-normal weather continue to bolster harvests in the West?

  • Increasing demand for water in the West, to quench the thirst of a growing population and for industrial purposes, could soon jeopardize Western agriculture.

  • To produce a good crop in the more arid West takes three to four feet of water per acre each year, much of which is diverted from streams and rivers. In the naturally wetter East, only six inches may be enough.

  • The West has fewer rivers and has tapped them. Because of diversion, the Colorado River is barely a trickle as it reaches the border with Mexico.

  • Consumers have grown accustomed to the relative uniformity of crops grown in the West. The predictable desert sun and temperatures, with diverted water for irrigation, produce a dependable harvest of predictable quantity and quality.

  • The East has more rivers and streams but also more variance in weather affecting the harvest. Droughts such as experienced this year in the Southeast can cut the harvest and force water rationing, as has happened in the Atlanta area recently.

  • Energy demands and government subsidies have encouraged production of biofuels. A growing numbers of scientists warn that the U.S. does not have enough water to sustain agriculture and to expand the production of biofuels.

  • The U.S. - long a breadbasket for the world - may become a net importer of food. If that happens, we will be consuming food products from nations that may be less careful with herbicides and pesticides. Remember the pet food and toys imported from China.


    Corn happens to be a very thirsty plant. That compounds the problem. We are vulnerable in part because, during the last century, much of America's agricultural production migrated to the West. Water diverted from rivers and aquifers combined with the dependable weather to produce a stable crop. Massive investments in irrigation and cost-efficient transportation to markets across the nation made the miracle possible.

    If you want to forward this to up to five friends, use the Please forward to a friend link at the bottom of this newsletter. To send this to a larger list in your email program, please click here.

    The dependable system has fed a growing nation and millions abroad. But the system may not be sustainable. In the end, if we keep burdening our agricultural system with additional chores, such as trying to replace petroleum, we make agriculture?s task of feeding all of us that much harder. True, we enrich some farmers, automobile manufacturers and petroleum companies with subsidies. True, those special interests have bullying spokespersons.

    But we won?t want to drink ethanol.

    Popular recent Reports

    America's thirst for energy: Who goes hungry?

    Juanita weeps: Why America's production of ethanol brings hunger to some poor Mexican families

    Lessons from a cemetery: An especially unappealing American trait

    The U.S. election: Why Hillary and Rudy seem likely to face off in November 2008

    2008: Unready runners

    2008: Searching for "Not Rudy"

    Are you receiving the Radnor Reports you want?

    Please click here to review Radnor's newsletters.

    Radnor Inc


    visit Radnor    email Radnor

    copyright © 2007 Radnor Inc.

  • Email Marketing by