USDA official outlines expanding biofuels industry

Cattle Market & Farm Reports, Editorials
Nov 27, 2006
by WLJ

The federal agriculture official in charge of rural development said last week that changes need to be made in government policies to make it easier for people in rural areas to invest in ethanol and biodiesel plants.

Tom Dorr, undersecretary for rural development for USDA, said rural America has significant wealth to invest in the rapidly expanding ethanol and biodiesel industries but regulations, tax policies, and technology in rural areas don’t make it easy.

The big question, he said, is: How can individual producers and rural neighbors, cooperatives and other rural entrepreneurs capture the value when big companies start to move in?

“It’s not the big guy versus the little guy, measured in money,” he said. “It’s the smart and quick guy versus the fellow who never gets off the dime.”

Farmers and others living in rural areas own $1.9 trillion in assets including farm land, ranches and forests, Dorr said. USDA statistics indicate that about $1.7 trillion is free of debt.

That’s a tremendous untapped source of capital that could be invested, which would help keep resources in rural areas rather than see them leave as they would if large corporations owned the plants, Dorr said.

For example, he said the developer of a $150 million ethanol plant would need to get investors to put up $60 million that could be borrowed against for the project.

“Today in New York, you could get it in one check and in Des Moines, you could probably get it in three checks,” he said.

In a rural community, it would likely take 5,000 or 6,000 transactions, he said.
“That’s not efficient. We need to figure out how to mitigate the transactional cost that enables rural people to invest in these,” he said.

Changing some tax policies and regulations could help, he said. The government could also offer technical assistance to help set up businesses, including franchises, cooperatives, limited liability corporations or partially owned subsidiaries.
There’s little doubt that the value in biofuels is there, Dorr said.

He used the example of an ethanol plant in 2003 in which initial investors bought shares at $1,000 each. A month ago, some of those investors were selling those shares at $10,000 each.

“It’s about figuring out how to leverage the private capital that’s out there, capturing this wealth and keeping it in those rural communities,” he said. “The business opportunity is there and the money is there. The key is to access information and confidence building to get potential rural investors off the sidelines and into the game.”

Dorr, a Marcus, IA, farmer before he accepted appointment to the USDA post by President Bush, brushed aside skepticism about whether the biofuels industry bubble would burst at some point, leaving investors with losses.

“Clearly there has been a major commitment by not just the government, but the private sector, by the research community and by the investment community, in renewable energy,” he said. “All I’m encouraging people to do is to look at mechanisms to make it possible for rural citizens to invest in these to capture some of that wealth.”