Ethanol Production Offers Income Stability

Business Management
Ethanol Production Offers Income Stability
by David Morris

Corn growers looking to add value to their crop and stability to their income would do well to look at ethanol production. That was a message brought to the OCPA Annual Convention by Mike Bryan. Mr. Bryan is President and CEO of BBI International, a biofuels consulting firm based in Colorado, and lead consultant working with the Integrated Grain Processors’ Cooperative (IGPC) to develop an ethanol plant near Brantford.

Mike Bryan

An ethanol plant brings considerable economic advantages to the area where it is located. Every bushel of corn turned into ethanol provides an additional $6.50 worth of value-added products. Corn producers benefit from the increased demand for their corn. Area residents also benefit from the jobs that are created - over 100 during the construction phase plus 30 to 35 full-time positions when the plant is in operation. The economy of the whole community benefits from the revenue from the operation. A 100 million litre plant, such as the one proposed for Brantford, can generate over $50 million dollars in revenue annually, 80% of which will be spent within a 100 km radius of the plant.

Mr. Bryan believes that there is still room for expansion within the ethanol industry in Ontario. The three plants currently in production in the province do not meet the demand. Ontario currently imports more than 100 million litres of fuel ethanol each year, and the demand is expected to grow. Both federal and provincial governments are encouraging ethanol use to improve air quality and to reduce our dependency on fossil fuels. Because ethanol is currently the only commercially available liquid fuel that offers a net reduction in greenhouse gas emissions, it will play a role in helping Canada meet its commitments under the Kyoto Accord. Mr. Bryan also predicts that increased ethanol production will, itself, stimulate increased demand. He predicts that as production increases and fuel manufacturers feel more assured of a dependable supply, more of them will begin to include it in their blends, thereby increasing the demand even more.

Most farmer-owned ethanol plants begin in a coffee shop, said Mr. Bryan. They’re the result of farmers saying: “Why are we selling our grain at wholesale prices, and letting it be shipped somewhere else, for someone else to add value to and sell back to us retail? Let’s make use of our grain here at home and make some of that money ourselves.”

Getting the idea is the easy part, however. The initial vision might come as the result of a casual conversation, but committing to actually build a plant is not something to enter into lightly - not when you are looking at over $70 million in construction and start-up costs, plus months, if not years, of hard work and dedication to get it on-line. Preparing the plans, filling out the required paperwork, obtaining the necessary approvals and securing financing takes a team of committed, hard-working ‘doers’, who are willing to put in many long hours with no expectation of immediate return.

Investors and lenders alike need to be convinced that the operation will be efficient and profitable, and able to withstand ups and downs in the prices of corn and ethanol. Banks and other lending institutions rarely advance more than half the cost of such a project - 40% is more common. Thus, the development team is immediately faced with raising $35 to $40 million from local investors before any bank will even begin to talk business.

Preparation of a solid proposal and business plan is fundamental to the success of the project. Many questions need to be answered up front. What size and design of plant will be built? Where will it be located? Does the proposed site have good access by road and rail, and a good supply of water? Can all of the required permits and approvals be obtained? Is a dependable supply of corn, of a quality suitable for ethanol production, available at an economical price? What source of energy will be used? Where and what size are the potential markets for ethanol? Are there local markets for the two byproducts, carbon dioxide and distillers’ grains? (Carbon dioxide, captured during fermentation, is typically sold to soft drink manufacturers to carbonate beverages. Distillers’ grains are sold as a high-protein livestock feed, making it advantageous to locate near an area of concentrated livestock production.) Finally, what will it all cost and what are the potential returns?

Mr. Bryan sees corn production and ethanol production as a natural fit. Farmers who own shares in an ethanol plant gain a cushion from the effects of swings in the price of corn. When corn prices are high, the farming business profits. When corn prices slip, dividends from the ethanol investment increase. Thus, being a shareholder in an ethanol plant is a way to create your own income stabilization plan.

10	Ontario Corn Producer April 2003