Co-op business model well suited for next-generation biofuel development

Co-op business model well suited for next-generation biofuel development

By Agri-Pulse Staff

© Copyright Agri-Pulse Communications, Inc.

Washington, March 26 – Calling for the rapid development of second- and third-generation biofuels, USDA Under Secretary for Rural Development Dallas Tonsager promises continuing USDA support for “the entrepreneurs who have the initiative and the drive to go out there and compete in the marketplace to build a new energy future.”

Writing in the March-April issue of USDA’s “Rural Cooperatives” magazine, Tonsager explains that “second-generation biofuel technologies will need to become commercially viable, including those that turn crop residue such as corn stover and energy crops such as switchgrass into ethanol. Third-generation biofuel technologies that turn feedstocks into advanced biofuels will also be needed.” To make it all happen, he adds, “We should focus on a diverse group of dedicated feedstocks, including: 1. perennial grasses; 2. energycane similar to sugarcane; 3. biomass sorghum; 4. oil seed crops and algae; 5. woody biomass.”

Tonsager also sees co-ops playing an important role in meeting the nation’s goal of increasingly replacing imported fossil energy with home-grown biofuels. “A business model similar to how we developed the ethanol industry can be used in this effort,” he writes. “Capital was found for ethanol projects in the 1990s by issuing proposals that asked for public participation in a project. With the membership fees paid, business plans were developed and prospectuses were issued to sell stock in a company. If enough people were willing to invest, we would be able to complete a project. We could spread the investor risk and the credit risk as widely as possible. . . To encourage public support, cooperatives are a great business model. New-generation cooperatives, unlike traditional cooperatives, are financed through the sale of delivery rights. Delivery rights represent a member’s right to deliver a specific amount of commodities to the cooperative.”

As an example, Tonsager points to a new-generation cooperative operating a producer-owned ethanol plant in Iowa that is producing more than 30 million gallons per year. “Within two months of its formation, 400 area residents had invested in the plant and become member-owners of the company.,” he writes. “The shareholders are area farmers who are also the primary suppliers of the corn processed in the facility. The producers are contractually obligated not only to provide funds, but also to deliver their products to the cooperative. Farmers invested in the plant because they are getting their feed and fuel from the cooperative. All of the corn that is processed is used in some capacity, whether it’s liquid, wet or dry feed for livestock, or alcohol for fuel. There is no waste.”

To read the March-April 2010 issue of USDA’s “Rural Cooperatives” magazine, go to: www.rurdev.usda.gov/rbs/pub/mar10/mar10.pdf

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