An Industry Pioneer Expands

In 1996, Ag Processing Inc. pioneered the biodiesel industry by building the nation's first purpose-built biodiesel production facility. A decade later, the co-op is expanding production and reinventing itself once more.
By Dave Nilles | July 01, 2005
To start with an idea and end up with an industry, everything in between has to change."

Those words, spoken by John Campbell, Ag Processing Inc.'s (AGP) vice president of government relations and industrial products, ideally describe the route his company and the biodiesel industry have embarked on together. Campbell described how the co-op's decision to build a biodiesel plant-and help jumpstart an industry-has evolved throughout the years. Today the industry's success has shown that AGP has made the right decisions at crucial points along the road.

Now, 10 years after the plants inception, AGP is expanding its presence in the marketplace with a large-scale expansion of its Sergeant Bluff, Iowa, methyl ester facility. The plant, and the company, has been a dynamic part of an equally dynamic industry.
AGP, a regionally federated cooperative, decided to expand the plant in November 2004-a move that will boost capacity by approximately 60 percent.

Campbell said AGP's management was extremely patient when the facility was initially constructed in 1996. They were essentially paying for a plant and staff to produce a relatively unknown commodity-with an even more unknown marketplace-at the time. The current expansion is proving their patience is paying off.

Expanding with the industry
The Sergeant Bluff expansion is expected to give AGP the capacity to produce 11 mmgy to 12 mmgy. Much of the work involves infrastructure improvements such as railroad track and inventory tankage intended to improve plant efficiencies and flexibility. According to the co-op's Web site, the plant was designed to produce 200 million pounds of biodiesel annually as demand increases. This expansion will produce approximately 100 million pounds.

"Our plant at Sergeant Bluff is a relatively small plant, remembering that it was built 10 years before we knew if there would be an industry or not," Campbell said. "We've been expanding incrementally. The current expansion is a reaction to the market evolving for the products right now."

The expanded plant, which is expected to be completed in early July, will use what Campbell terms a "continuous batch process," merging the plant's original batch process with a more streamlined continuous flow. The co-op is handling its own engineering.

The biodiesel plant expansion comes on the heels of AGP's recently renovated and rebuilt soybean processing complex, also located in
Sergeant Bluff. AGP owns and operates soybean processing plants and vegetable oil refineries throughout the United States, making it the largest cooperative soybean processor in the world. Every month, AGP plants acquire more than 18 million bushels of soybeans for processing.

From the plant's construction in 1996 as the nation's first purpose-built biodiesel production facility, it has expanded in capacity-mainly through debottlenecking-with the industry. It's been a natural reaction to the demands of the industry, unlike how the plant's creation was sparked.

Campbell joined AGP in 1991 and immediately began exploring the possibility of creating a biodiesel business. The impetus to build the plant was sparked by the result of international trade negotiations. The Uruguay Round of World Trade Organization negotiations had ended in the early '90s. The agreement was the first time that agricultural services, market access and anti-dumping rules were covered under international trade disciplines. Campbell said this caused the export subsidy program for vegetable oils to be eliminated.

"We looked at the spectrum of having a lot of soybean oil piling up in storage," Campbell said.
But did AGP really see the industry growing the way it is now?

"We didn't know," Campbell said. "We saw energy probably being on the rise, but we had a vision. It seemed to make sense. We saw energy and oil prices rising and the continued push toward renewability. The inherent advantages of biodiesel are because of its intrinsic properties. We had a hunch and believed, in the long term, this would be a good move."

The plant was also built partly because AGP was having trouble finding third-party biodiesel producers. Since 1992, prior to building the plant, AGP had marketed biodiesel made by others. Many of those plants were oleochemical producers, meaning they didn't have dedicated biodiesel production. Instead they created high prices, an inconsistent product, or at times, no product. "Somebody had to step up to the plate and take the risk to build a plant the industry could depend on for consistency, reliability and low prices," Campbell said.

Shortening the learning curve
Biodiesel isn't the first renewable fuel with which AGP has been involved. The co-op's Hastings, Neb., ethanol plant was built in 1995 and currently produces 52 mmgy of ethanol. Campbell said the nature of both industries is similar, aiding AGP in getting its biodiesel project moving. It also showed them that there wouldn't be success overnight.

"There are good times and bad times in ethanol," Campbell said. "So when we've been through the industries-whether it be soybean processing, ethanol or biodiesel-that are cyclical, you know to pay attention to the details. You know to plan for the ups and downs in the business."

Biodiesel production could almost be seen as more of a natural fit for AGP. The co-op deals with large amounts of soybeans on a daily basis. The infrastructure was already there. AGP's vertical integration helps to deal with the peaks and valleys within the industry.
"When we started with biodiesel, we were it," Campbell said. "There was no tax incentive, no industry. That was it."

Setting the 'gold' standard
The biodiesel produced at AGP's plant is marketed under the SoyGold name by the co-op's wholly owned subsidiary Ag Environmental Products LLC.

Campbell explained the meaning behind the name. "In a young business that is not yet totally 'commoditized,' we thought it was important to distinguish ourselves by letting people know we are soy-based," he said. "We are a soybean marketing company for farmers, owned by farmers. We want to make sure that both our owners and customers know what they're getting. That's the reason for the word 'soy.'

He continued, "'Gold' is because we set industry standards for quality. We've learned a lot along the way about what is important in the quality manufacturing process, research and development, and laboratory analysis. We believe we have the highest quality."
Ag Environmental markets SoyGold throughout the country. The plant's unrefined glycerin is sold to refiners.

Legislative efforts and a look to the future
Campbell admits that the USDA's CCC Bioenergy Program has played an important role in the plant's, and the industry's, development. It's allowed more producers to get more fuel to the public. But with that program slated to sunset at the end of fiscal year 2006, the industry is looking to other drivers for continued success.

AGP not only produces biodiesel, but it has worked on developing the legislation to spur the industry. Campbell is chairing a National Biodiesel Board committee, assisting the Internal Revenue Service in developing the regulations for the biodiesel tax credit. He said that passage of the tax credit was especially gratifying, although he would have liked it to pass sooner, because it shows the last 10 years of research and development at the Sergeant Bluff plant have been well spent.

The future of the tax credit is currently in the hands of U.S. Congress. The original credit is set to expire by the end of 2006. However, legislation is currently being formulated to extend that credit, possibly until 2010.

However, other issues may affect the industry. Campbell said that in the future there will undoubtedly be a disconnect between biodiesel feedstock and capacity. "We don't know when those lines will cross, but they will at some point," he said.
Until that day comes, AGP continues to assess the market and adjust its Sergeant Bluff plant's output as necessary to meet demand. After all, it's the same way they started in 1996.

"[The industry's success] is manifest with people like John Deere and Chrysler factory-filling their vehicles," Campbell said. "Actions speak louder than words."

Dave Nilles is a Biodiesel Magazine staff writer. Reach him by e-mail at [email protected] or by phone at (701) 746-8385.
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