ETHANOL SUCCESS STORIES IN THE U.S.
by Tom Cox, Chair Integrated Grain Processors Cooperative

In the era when the buzzword for increased agricultural profitability is "value added", a group of farmers are the driving force behind an initiative that could see a new, commercial-scale fuel-grade ethanol production facility built near Brantford, in southern Ontario. Integrated Grain Processors Cooperative (IGPC), a local farmer-owned incorporated cooperative formed in April 2002, are currently engaged in an equity campaign to secure the capital required to fund their facility.
The new plant would increase the demand for Ontario corn and be a boon to the local economy of the communities surrounding the Brant County site. It is a massive undertaking but the cooperative believes the timing is right for the project.
And as the saying goes - timing is everything.
World crude oil and gasoline prices are hovering near all-time highs, and fueled by society's desire to decrease both greenhouse gas emissions, and our reliance on foreign oil sources. Demand for renewable fuel sources are both attractive and increasing.
The Ontario market is neither as mature nor as developed as the American market - and different business and legislative climates exists between the two countries - but, as Ontario begins to expand production capacity, it is well worth examining the American ethanol experiences. South of the border, ethanol is big business.

The American Ethanol Experience

To find out how U.S. farmers have been impacted, here we look at five success stories:
Golden Triangle Energy Cooperative. LLC. in Craig, Missouri, is a 75 million litre* per year production facility in operation since early 2001. The Monroe, Wisconsin site of Badger State Ethanol. LLC (BSE) has been operational since mid-October 2002, producing about 190 million litres* of ethanol per year.
Husker Ag. LLC in Plainview, Nebraska began as an independent project for one man, Gary Kuester, of Stanton, who had smaller ethanol projects on his own farm for many years. Other investors came on board and the new 75 million litre* per year plant began production in March 2003 - performing at peak efficiency and outputting over 102 million litres* per year.
The traditional measure of performance for a plant is production capacity and as the Aurora, South Dakota site of VeraSun Energy Corporation nears the end of its first year of production, Bill Honnef, Vice President, Sales and Marketing, reports the 136 million litre* per year plant is operating at production capacity, performing well financially and within safety guidelines.
But even with success stories, project development - from concept to completion - can be a long, drawn out exercise and both investors and producers need to have realistic expectations for project completions. Byron Fink, president of Golden Triangle Energy Cooperative, LLC, reports the steering committee's initial meeting took place in the summer of 1994. The plant ground their first corn in February 2001. "It was a long process," he concedes.
Other projects have progressed much quicker. Only three years after the planning team met to discuss the idea for a new plant in mid-central Missouri, Mid-Missouri Energy. Inc.'s (MME) new 150 million litre* per year facility in Malta Bend expects to come into active production early 2005.
There is tremendous enthusiasm surrounding this project, particularly because it is entirely funded by the farming community. Because of the substantial amount of capital required to start up an ethanol facility, Ryland Utlaut, President, explains most of the new ventures going forward are limited liability companies (LLC). But by raising all of the necessary capital from within the farming community - $24 million -their 100 per cent farmer-funded initiative is the exception rather than the rule. Boasting 729 members, the average investment per member is just slightly above U.S.$30,000. He credits a lot of the success of their venture to David Kolsrud, a gentleman involved with several U.S. ethanol projects and to the success of two existing operations in Missouri. "I think we kind of had a pent-up demand from people who had heard about those plants and wanted to be part of one," says Utlaut, 63, a former President of the National Corn Growers' Association, who farms in partnership with his brother in Grand Pass, Missouri.

Economic Benefits

With increased demand for corn, there is the expectation the corn basis will improve and the U.S. Department of Agriculture (USDA) report about 20 to 40 cents per bushel is realized, because of ethanol production. Each of the gentlemen interviewed report their community realized a positive influence on basis by about five to ten cents a bushel, because of the ethanol facility, with the benefits rippling throughout the area. The ten county area surrounding the MME plant grows 70 million bushels of corn. "If you have a five cent increase on 70 million bushels...that is $3.5 million more income coming to the people in this area," says Utlaut. For farmers within the first twenty-mile circle around the BSE site, John Malchine, co-founder and chairman of the board expects the plant has raised the basis by about 15 to 18 cents. But Kuester does not see the basis gain as the main benefit of an ethanol plant. What does he see as the main benefit? "The fact that the area people have ownership in the plant itself, and those investments that they have made, have paid back so much better than anything else they could have invested in." He says the report of a study by the Nebraska Public Power district, determined the plant had made a $46 million per year positive impact on the 50-mile radius around the plant. "It is just amazing that it would do that, but they have all the figures to back that up," he says. Each of the communities reported increased economic development, primarily from plant employment and the increased demand for the raw materials. "Since the raw materials come directly from the surrounding communities, every time we add a nickel or dime to a bushel of corn.. .those nickel and dimes are distributed throughout the community and get re-circulated," says Honnef. The construction of the VeraSun plant in Aurora is believed to have directly contributed to Brookings County having the largest increase in sales tax for any county of its size in the state of South Dakota last year.

Returns to Investors

For the farmer-owned cooperatives, there is the additional advantage of dividend cheques if returns have been favourable. With 300 owners in the Golden Triangle, Fink reports they have had very low turnover in ownership and growers have had a good experience. "They should be pleased because they have had excellent returns," he says. Kuester reports Husker Ag investors have been getting about 50 per cent return on their investment. "It is definitely a success story," he says. BSE shares were initially offered for $ 1,000 and stock information posted on the BSE website shows shares trading for $2,630 on June 28, 2004. Last year at the end of their first year of operation, BSE investors received a dividend cheque of $250 per share. While there are numerous reasons for optimism in the ethanol industry, like any business enterprise, it is not without its risk. Although the price of crude oil has done nothing but increase recently, Fink says that trend could change which would affect the price of fuel alcohol. He says he ended every information session by reminding potential investors that ethanol production plants are a high-risk venture. "You can't say this enough," he says. While the number of operational plants is a testament to the ethanol success story in the U.S., Kuester admits there have also been several failed ventures, and the Husker Ag board has tried to learn from the misfortunes of the other ventures. But when a plant is done right, he says, "there is nothing better for a rural economy than these ethanol plants."

*U.S production figures converted to Canadian litres

CANADIAN ETHANOL WEBSITES
The Canadian Renewable Fuels Association www.greenfuels.org
Commercial Alcohols Inc. www.comalc.com
Integrated Grain Processors Cooperative www.igpc.ca
Ontario Corn Producers' Association www.ontariocorn.org/ethanol.htm
Seaway Valley Farmers' Energy Cooperative www.glen.net.ca/ethanol

AMERICAN ETHANOL WEBSITES
American Coalition for Ethanol www.ethanol.org
BBI International www.bbiethanol.com
Badger State Ethanol, LLC www.badgerstateethanol.com
Energy Information Administration www.eia.doe.gov
Golden Triangle Energy Cooperative www.goldentriangleenergy.com
Husker Ag, LLC www.huskerag.com
Mid-Missouri Energy www.midmissourienergy.com
Renewable Fuels Association www.ethanolrfa.org
VeraSun Energy www.verasun.com

U.S. ETHANOL PRODUCTION

  • 80 production facilities
  • 12.96 billion litres* of fuel ethanol
  • $4.5 billion added to the U.S. farm income annually
  • 10 new plants under construction
  • New plants will bring U.S. capacity to 14.4 billion litres* annually
  • Farmer-owned cooperatives account for the majority of the new ethanol
    • facilities brought into production since 1990.
    *U.S. gallons converted to litres