Is Biodiesel Right for Arkansas?

Despite the fact that Arkansas grows 4 percent of the nation's soybeans and is home to a major rendering facility, the state is still void of a large-scale biodiesel production plant. Now, government and private industry advocates want to know why.
By Gary DiGuseppe | December 01, 2004
In Arkansas, a soybean-growing state that is home to the world's largest meat and poultry processing company, enthusiasts continue to search for ways to build and develop an in-state biodiesel industry. Despite continued efforts, obstacles-real and perceived-have held back progress. Finally, a government-funded study has simply asked: What stands in the way?

In August, Morrilton, Ark.-based Winrock International unveiled a pre-feasibility study on the potential for biodiesel production in Arkansas. Winrock, a nonprofit organization which works to promote economic development internationally, received funding from USDA's Rural Business-Cooperative Services agency toward the study. The group commissioned Memphis, Tenn.-based Frazier Barnes & Associates and Agri Process Innovations of Stuttgart, Ark., to produce the report, which was presented Aug. 27 at the University of Arkansas-Little Rock. Numerous industry leaders and government officials were in attendance, as was U.S. Sen. Blanche Lincoln, D-Ark., a member of the Senate Agriculture and Finance Committees and a long-time champion of biodiesel in Congress.

Soybean acreage more than sufficient
On the surface, Arkansas appears to be well-suited to help the burgeoning biodiesel industry grow. It's the ninth largest soybean growing state, with an estimated 2004 crop of 126 million bushels-4.1 percent of the U.S. supply. A crop of that size would be expected to yield about 1.45 billion pounds of soybean oil, the report found.

However, very little of the state's soybean crop is actually processed there, as Mike Shook of Agri Process Innovations pointed out during the presentation. With the recent closing of Archer Daniels Midland Co.'s soybean crushing facility in Little Rock, the only remaining major processor of soybeans is the Riceland Foods plant in Stuttgart, which has a soybean oil production capacity of roughly 26 mmgy. Another facility, Planters Cotton Oil Mill in Pine Bluff, produces 11.5 mmgy of cottonseed oil (Arkansas is also a major cotton producing state with a 2004 crop of 1.87 million 480-pound bales-8.7 percent of U.S. production).

A small soybean crushing facility has also recently come on line in England, Ark., just southeast of Little Rock. Operated by England Dryer and Elevator, it will produce a modest 1 mmgy of vegetable oil. Gary Canada of England Dryer was on hand for the Aug. 27 presentation. "For 50 years, we've been a grain handling facility, and we wanted to expand on that," he said. "... We hope to add to our current business and help our local economy by creating jobs and processing those beans at home."

Canada said the small crushing facility was discussed for half a decade and built in a year. Now that the plant is on line, the elevator's investors expect to get a quick return on their investment.

Consumer demand limited
Despite success stories like the one in England, 82 percent of Arkansas' soybean crop is now shipped elsewhere for processing, mostly overseas; southern soybeans tend to have higher oil content and are favored in particular by Asian processors. As of April, Arkansas had 30 biodiesel retail outlets, but no manufacturers. It's interesting to note that virtually all of the biodiesel outlets in Arkansas are in the northeast and the Grand Prairie, where soybeans are grown. Shook said farmers in his area-the hometown of Riceland Foods, the heart of the Grand Prairie-are buying a lot of biodiesel, even though B2 typically sells for about three cents more than the price of petroleum diesel. "They don't have to," Shook explained. "They could save that 3 cents per gallon. But they want to promote their own product, do what's right for the environment-that's what's driving a lot of the demand right now."

Off-road vehicles, though, are the biggest diesel users in Arkansas, which is also a major crossroads for the interstate trucking industry; the state consumes an estimated 900 million gallons of diesel fuel per year, two-thirds of that in highway use. The use of B2 alone, Shook said, would account for nearly all of the soy and cottonseed oil now produced in the state. But Shook and the report's co-author, Jim Wimberly of Biomass Investment Group (BIG), said any start-up enterprise would face risks, and that threat has constrained investment.

Inherent production risks
The main deterrent to investing in biodiesel plants, according to Shook, is the volatility of the cost of basic feedstocks. Over the last three years, the price of soybean oil has fluctuated between 14 cents and 35 cents per pound. "That has a big impact on the feasibility of building one of these plants," he said. " The cost of the feedstock accounts for 75 percent to 85 percent of the price of the final product. That means at the top of that price range, the raw materials to produce a gallon of biodiesel would cost about $3. "That's what makes it hard for an investor to invest in a facility," he said. "Hey, it makes sense today-the price is 15 cents a pound. I can make money. Six months from now, I could lose millions ... it's hard to attract investors when there's that much volatility."

Shook is concerned that biodiesel has not established a solid user base. One emerging group of users, he said, is what he called "enthusiasts"-people who own a diesel truck or car and may want to use biodiesel. "It's probably one of the biggest areas that's non-mandated, where people are using biodiesel right now," he said.

Feedstock options exist, but face limitations
Can the cost of biodiesel production be reduced? Shook said non-virgin oils get a lot of publicity "from the people who are pro-environmental." They're cheaper in addition to their recycling benefits, he explained. Although its tonnage was not enumerated in the report, Tyson Foods, the biggest chicken and beef processor in the United States, maintains a large rendering plant in the community of Clarksville, Ark. Animal and poultry fat are suitable biodiesel feedstocks, as is waste grease from the restaurant industry; the availability of waste grease was pegged by Frazier Barnes in the report at 5.8 mmgy in the Little Rock area alone. But Shook cited disadvantages; the contaminants would have to be removed, adding to the cost and further complicating processing. As for the animal fat, Tyson and other companies already have a use for it, as an additive to livestock feedstuffs. Transportation would also be more difficult, the report indicated.

A plant could also be geared toward using more than one feedstock, shifting to waste oils and fats, for instance, when vegetable oil prices spike. But that, too, Shook said, is expensive and complicated. It increases the capital costs of the plant; the pre-processing capacity would have to be there whether or not it was being used.

Biodiesel must meet ASTM standards to become EPA registered and salable for highway use. The challenge of meeting fuel quality standards may have prevented Arkansas from getting its first biodiesel plant. Robert Stobaugh, an Atkins farmer and past Arkansas Soybean Association president, serves on the Jefferson City, Mo.-based National Biodiesel Board. He explained just how real the fuel quality challenge is to would-be producers. "We got close to a plant being established in Arkansas on the very eastern side, and it didn't work out," he said. "... We have to first ensure that we have the fuel labeled correctly and that we have all of its properties spelled out so that the end user knows exactly what he's getting and what he wants. Then we have to get that fuel distributed, and right now, that seems to be a little bit of a hindrance with the pipeline companies-they're a little bit apprehensive about putting anything in their pipelines that is not petroleum-based."

What would spur investment?
Both Shook and Wimberly were dubious that tax credits, of the sort recently approved by Congress or others already in existence on the federal and state levels, would attract the money needed to get a large biodiesel plant financed and built in Arkansas. Although a number of industries benefit from tax breaks, reliance upon them is "risky business," Wimberly said, adding, "Investors are in the business of making money [if] your business plan, in order to make a profit, is reliant upon these kinds of support programs, that brings a significant amount of risk to the situation, and a lot of investors will walk away from that."

Instead, as an alternative to a "complicated, costly-to-administer public support program," Wimberly recommended the industry push for mandated use of biodiesel. He said, "This will automatically provide the incentive that will enable the investor to invest in biodiesel processing, and it will also trickle down so that farmers will shift gears in their crop production to embrace [alternatives], because they know there's going to be a demand for biodiesel."

The most likely source, or impetus, of such a mandate would seem to be air pollution concerns. Arkansas has faced air pollution problems firsthand. Crittenden County, part of suburban Memphis, Tenn., has faced EPA non-attainment status for high ozone levels, and the county Farm Bureau got virtually all of the county's farmers to pledge to use biodiesel blends as a way to draw local attention to the alternative fuel. During the program, Sen. Lincoln said Crittenden County residents had embraced biodiesel: "Realizing that they have to have plausible solutions as well ... the response from people is, 'Why are we not doing this?'"

Lincoln was upbeat about the prospects for biodiesel. The lawmaker, who recently won reelection and will hold a seat in the Senate for a second six-year term, said, "I think there is great potential for our country, and great potential here in our state to be part of the solution for ... a bigger problem." In the face of record fuel prices, she said, instead of asking OPEC to raise production and lower prices, "our energies would be better spent at looking at ways that we can produce our own."

But when it came to the gist of the report-that Washington should require use of biodiesel-Lincoln, a political centrist, was hesitant. There's a cycle, she pointed out; to make biodiesel production cost effective, more people have to use it, the effect on the marketplace for the feedstocks has to be examined, and crops have to be produced to maximize oil availability. "The bigger problem in Washington is, unfortunately, we get a black eye, and people don't like us to necessarily tell them what to do," she said. "Incentives are what most people prefer."

On the other hand, she said, reports like Winrock's lead decision makers to realize mandates are sometimes needed.
After the report was presented, Wimberly said BIG, his Gulf Breeze, Fla.-based company, had focused on growing dedicated crops for conversion into energy by power companies. In the electricity production business, he said, long-term supply contracts are fairly standard;

Wimberly wants to see similar contracts offered for the production of biomass derived liquid fuels. Asked if these ventures on the whole had been losing money, he remarked, "Well, I always respect the pioneers, but we have to realize that most of this is going to come about through private investment, and the private investors are inherently risk averse. So what we have to do is-as a society-identify the risks and develop strategies for bringing those risks down to levels that are acceptable to the investors."
A long-term purchase commitment, he said, would address the investors' primary concern-retirement of debt on a production facility. "After that, of course, then they also want to make a margin, and make a profit." n

Gary DiGiuseppe is a freelance writer who lives in Maumelle, Ark. He can be reached at [email protected]
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