LEAL, N.D. (AP) -- Mike Clemens figures he can make more money growing fuel instead of feed.
The rural Barnes County farmer, who is president of the North Dakota Corn Growers Association, says he grew enough corn last year to produce about 185,000 gallons of ethanol.
He and other producers want to turn their corn into energy, by building North Dakota's third ethanol plant. But while some farm states like Minnesota and South Dakota are gearing up to meet the growing demand for ethanol, some corn farmers say North Dakota has not been aggressive enough in subsidizing ethanol production.
Minnesota and South Dakota are ethanol leaders because the states helped develop the industry, said Trevor Guthmiller, executive director of the American Coalition for Ethanol in Sioux Falls, S.D.
"I think what the ethanol industry in North Dakota needs to see next is some commitment to a producer incentive to help these new projects get off the ground," Guthmiller said. "There's been a lot of questions about the state's commitment."
Guthmiller said incentives in Minnesota and South Dakota have led to remarkable expansions in the each state's economy and ethanol plant construction.
South Dakota has gone from two ethanol plants to six, which produce 130 million gallons of ethanol annually. Three more plants are being built.
Gov. John Hoeven said North Dakota is a much smaller corn producer than Minnesota and South Dakota and can't support a comparable ethanol industry. He also said with the state's small tax base, it can't afford to hand out the subsidies offered by other states.
But Hoeven said North Dakota has been taking steps to foster the ethanol industry. In addition to a $1 million increase in subsidy payments, the Legislature approved an income tax credit for producers who invest in value-added agricultural ventures.
North Dakota has provided ethanol subsidies for years, including payments to the state's two ethanol factories and tax breaks for ethanol-blended fuel. The fuel incentives were eventually dropped in favor of production subsidies to the plants themselves.
The Legislature has earmarked $2.5 million over two years in payments to North Dakota's two ethanol plants, in Grafton and Walhalla. The factories are being paid 40 cents per gallon of ethanol produced, with an annual limit of $750,000 for the Grafton factory and $500,000 for the Walhalla plant.
Hoeven said he hasn't ruled out another increase in North Dakota's ethanol subsidies for the next biennium, despite facing a budget shortfall. He said he favors giving larger subsidies when the ethanol market is down, and smaller payments when it is prospering.
Last year, both the Grafton and Walhalla plants would have been profitable without North Dakota subsidy payments.
Hoeven has ordered state vehicles to use ethanol, and said he's interested in a proposal that would require service stations to include an ethanol-blended gasoline.
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