By TIM HEARDEN

Capital Press

SACRAMENTO, Calif. -- A bill that would end future state subsidies for corn-based ethanol is in the California Senate after sailing through the Assembly.

The bill by Assemblyman David Valadao, R-Hanford, would bar any funding from the Alternative and Renewable Fuel and Vehicle Technology Program for corn conversion after July 1, 2013, when current funding is set to expire.

"We're thrilled that (the state bill) looks like it's headed for passage, and we hope once it does pass that the governor signs it quickly," said Michael Marsh, CEO of Western United Dairymen. "It's just another one of the legs in that stool that we're trying to knock out to bring some relief to producers from an increase in corn prices."

Valadao, a dairy farmer, eliminated widespread opposition by watering down the bill, which initially immediately cut the subsidy. But the new version still won praise from WUD and the California Cattlemen's Association, which joined other groups in blaming corn-based ethanol for driving up feed costs.

"The continued subsidization of corn ethanol has had an extreme negative economic impact on livestock producers," CCA vice president of government relations Justin Oldfield told the Assembly Transportation Committee in a letter.

"Corn remains the primary ration for livestock feed, and livestock producers are left to unfairly purchase corn in a market against ethanol producers, who are heavily subsidized," he wrote. "Ethanol subsidies have resulted in massive market fluctuations and have dramatically increased the price of corn as more corn on an annual basis is devoted to ethanol."

Three ethanol plants in California have received technology program funding -- Calgren ($2 million), Pacific Ethanol ($2 million) and AE Advanced Fuels Keys ($1.8 million), according to an Assembly bill analysis. The program includes low-interest loans for plant construction.

Most corn in California is grown for silage, so Calgren ships the bulk of its corn for fuel conversion from the Midwest, said Lyle Schlyer, president of the Pixley, Calif.-based company.

Schlyer notes that the state program will still support ethanol production from other feedstocks, although the industry has had trouble finding those that are commercially viable.

"I know there is a lot of sentiment against corn-based ethanol, and I'm not sure I fully appreciate it all," he said. "The ethanol industry has helped improve the demand for agricultural products and helped growers to be profitable.

"I think the opposition is perhaps a little shortsighted and doesn't recognize the fact that having a strong agricultural economy is a good thing," he said.

Schlyer asserted various factors contribute to higher corn prices, including China's gradual move from a grain exporter to a grain importer.

However, corn-based ethanol has long been a target of animal agriculture groups, which have fought on a national level to scale back federal subsidies.

Valadao's bill passed the Assembly, 73-2, on Jan. 30 after facing little opposition in the Appropriations and Transportation committees. His earlier version failed in the Transportation Committee last year after facing stiff opposition from ethanol producers and labor groups.

Assembly Bill 523

Proposal: Eliminate future state subsidy for corn-based ethanol production

Author: Assemblyman David Valadao, R-Hanford, http://arc.asm.ca.gov/member/30/?

Proponents include: California Cattlemen's Association:http://www.calcattlemen.org/

Critics include: No opposition on file with Assembly

Read the bill:http://leginfo.ca.gov/