As an investor, I'm not fond of ethanol. I've got several good reasons, including its marginal environmental benefits, the high price of corn, and the ever-present possibility that it might lose its political support -- and generous subsidies -- on Capitol Hill.

I haven't invested in small to mid-sized ethanol plays such as Aventine Renewable Energy (NYSE:AVR), US BioEnergy (NASDAQ:USBE), or Pacific Ethanol (NASDAQ:PEIX) because I think the industry will eventually go through serious consolidation, leaving only a few significant producers.

To this end, I think it's a safe bet that Archer Daniel Midlands (NYSE:ADM), the world's largest ethanol producer, and perhaps Poet (formerly Broin Energy), the world's second-largest producer, will be among the survivors. And recent actions by VeraSun (NYSE:VSE) have convinced me that it, too, will survive.

For starters, the company is doing an excellent job of forging relationships with key customers. Recall that last year, the company partnered with General Motors (NYSE:GM) to promote its ethanol, and in July, it announced a similar deal with Enterprise Rent-A-Car. Last week, it added to this list by announcing that Kroger (NYSE:KR) -- one of the country's larger grocery chains -- will begin selling VeraSun's VE85 fuel at 20 of its locations.

The deal might seem small, but it offers substantial upside for VeraSun, because Kroger operates 652 supermarket fuel centers. The trick for VeraSun will be to convince Kroger to increase the number of stores that make VE85 available to customers.

As significant as the Kroger development is, VeraSun recently unveiled two other initiatives that are even more significant. First, on Aug. 20, the company closed its deal with ASAlliances Biofuels to acquire three 110-million-gallon ethanol facilities for $725 million. This new capacity, paired with existing capacity and capacity in the planning stages, will allow VeraSun to produce up to 1 billion gallons by the end of 2008. This is the kind of large-scale production that could allow the company to achieve the economies of scale needed to more effectively control its margins.

The second initiative announced last month was the news that VeraSun was investing an undisclosed sum in SunEthanol, a private Massachusetts-based company seeking "to commercialize proprietary cellulosic ethanol technology."

The economic viability of cellulosic technology is still unproven, but I like the move because it suggests that VeraSun takes seriously the possibility that cellulosic ethanol adoption may be feasible. If cellulosic ethanol does pan out, VeraSun intends to be able to make the transition away from corn-produced ethanol.

That said, these initiatives -- the deal with Kroger, the expanded capacity, and the investment in cellulosic technology -- still aren't enough to convince me that an investment in VeraSun is prudent. Now, though, I am at least confident that the company will be around in a few years -- which is more than I can say for some other, smaller ethanol companies.

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Fool contributor Jack Uldrich does not own stock in any of the companies mentioned in this article. The Motley Fool has a disclosure policy.