-Caveat Lector- Farmers Fume as State Goes Against the Grain Agriculture: Corn Belt banked on ethanol to bail it out. But California resists alternative fuel additive. By STEPHANIE SIMON, LA Times Staff Writer MACON, Mo. -- The factory yard smells like fresh beer and burned toast. There's a constant thrum and clatter. Giant machines are crushing corn, stirring mash, fermenting a goopy syrup into pure grain alcohol. The final product streams out of a tap, crisp and clear, with an odor sharp as a paper cut. It's ethanol, a fuel made from corn. A fuel that folks in the heartland are counting on to bail out rural America--if only California would quit being so pigheaded and agree to buy it. But California isn't biting. To the immense frustration of Corn Belt farmers, California officials are resisting ethanol with all they have. Federal law requires most gas sold in the state to contain an additive that reduces emissions, to keep air pollution in check. The additive used now, MTBE (methyl tertiary butyl ether), is being phased out because it can spoil ground water. The only alternative available is ethanol. So farmers here initially thought they would reap a billion-dollar bonanza: Supplying California with ethanol would take huge quantities of grain. That demand would send corn prices up. Working the fields would be profitable once again. And that would mean new hope for withered farm communities such as this speck of a town in northeast Missouri. Yet the windfall now seems far from certain. Blasting the federal clean-gas requirement as a "straitjacket," California Gov. Gray Davis earlier this month filed suit to block it. And in the ultimate thumb-in-the-eye to Midwest growers, the Davis administration has been talking about importing ethanol from Brazil if the state is forced to use it at all. "The Midwest might have thought they had the market locked up, that we would have to buy ethanol from Iowa," said William L. Rukeyser, a spokesman for the California Environmental Protection Agency. "This is 2001. Free trade is the name of the game." Added Roger Salazar, a spokesman for the governor: "The price of [Midwest] ethanol is going to go through the roof" if farm states corner the market. To bust that monopoly and to ensure adequate supply, "we may be forced to look elsewhere," Salazar said. Around here, those are fighting words. Commodity prices have been low for years, in large part because farmers have gotten too good at growing: They are producing more corn and soybeans than the market can absorb, with the predictable result of slumping prices. Many growers can turn a profit only with government subsidies; they can't pay their bills without handouts. Ethanol represents a way out. If California started buying it in bulk, it would be "a chance at last to pump some money into the rural economy," said Gary Marshall, chief executive of the Missouri Farm Growers Assn. Added John Eggleston, a corn grower who helps run the ethanol plant here: "I wish they would give us a chance." There is a fairly robust market for ethanol now, mostly in the Midwest and Southwest. In Chicago, Houston, Milwaukee and other cities with air pollution woes, ethanol is routinely blended into gasoline to reduce emissions. The Macon plant, which produces 21 million gallons a year, plans to double its capacity just to meet the ethanol demands of St. Louis and Des Moines. Still, the California market is a cut above, by virtue of sheer size. The state would need an estimated 700 million gallons of ethanol a year, boosting national demand for the fuel by at least 35%. It might also nudge New York, which is facing an MTBE phaseout of its own, into the ethanol market. To meet this anticipated surge in demand, ethanol boosters across the country are building 12 plants and expanding several dozen more. Such entrepreneurs tout ethanol as a win for everyone. Californians clean up their air, Midwesterners earn decent money for their corn and the nation as a whole reduces its dependence on foreign fuel. There's even an opportunity for California to build a home-grown ethanol industry; half a dozen projects on the drawing board would produce ethanol from municipal waste, timber cuttings, rice straw, cheese whey and other resources abundant in the state. Yet in Sacramento, Davis administration officials argue that the costs far outweigh any benefits. Echoing the arguments of oil companies, which would have to spend huge sums to retrofit their refineries, state officials complain that adding ethanol to gasoline would be both cumbersome and costly, jacking up prices by several cents a gallon or more. They fret about possible gas shortages if the Midwest supply of ethanol runs short. And they contend that there already is a reformulated gas, without MTBE, that burns as cleanly as gas containing ethanol. The federal law pushing ethanol, they say, is about the politics of placating Midwest legislators, not about good science and clean air. "Ethanol is yesterday's technology," Rukeyser said. Although it is needed in small amounts to combat winter carbon monoxide emissions in Los Angeles, "in the rest of the state, for the rest of the year, it's a very expensive irrelevance." California officials also maintain that transporting ethanol from the Midwest is not as easy as it might seem. They say rail facilities are inadequate for bulk shipments of ethanol, so unless special pipelines are built, most of the fuel would have to be shipped by barge down the Mississippi River and then by tanker through the Gulf of Mexico and the Panama Canal to West Coast ports. Shipping it directly from a place such as Brazil might be cheaper. And Brazil, which makes huge amounts of ethanol from sugar cane, is eager to oblige. Wilson Nigri, an advisor to Brazil's foreign trade ministry, has met with California officials and gas company executives to let them know that his country "has the industrial capacity today to fulfill 100% of California's needs," he said. Brazil does not want to supplant U.S. ethanol producers, he said, "but every [consumer] likes to have alternatives." In other words, Rukeyser said, "the Midwest might have been lulled into a false sense of security" about its value as a source of ethanol. Such talk baffles Steve Burnett, the general manager of the Macon ethanol plant, which was launched by a group of local farmers. A sprawling facility infused with the sweet, yeasty smell of fermenting ethanol, the plant is set amid corn and soybean fields that stretch to the horizon in all directions. Everywhere Burnett looks, he sees good old American produce that could be turned into good old American fuel. He can't see how California could resist. 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