Farm Bill: Offerings for plant operators, investors, developers
The U.S. Farm Bill defined: /färm bil/ – a five-year piece of legislation that typically takes six years to develop and reach consensus among U.S. senators, representatives, and the president. The policy provides regulation, support and funding towards nutrition, crops, livestock, forestry, conservation and a number of other areas. Orchestrating this feat is nothing short of a miracle.
By that definition, a miracle occurred in late January, as the 2014 Farm Bill, termed the “Agricultural Act of 2014,” began an expedited forward towards implementation. With 949 pages of text touching almost every sector of agriculture, a keen understanding of the intricacies within the Farm Bill can enhance the success of bioenergy and agricultural businesses in the U.S. and around the world. The House passed the current markup of the Farm Bill on Jan. 28, and approval by the Senate is likely in the next couple of weeks. Following that, the president is expected to sign the document, which allows the administration to refine rules for existing programs, create regulations for new programs, and execute on the policy objectives. While there will still be several program rules that evolve as changes to regulations are proposed and implemented, initial language of the proposed Farm Bill, plus the conference manager’s report, may provide a good indication of where certain programs will end up.
The 2008 Farm Bill was instrumental in providing a framework for the advancement of new bioenergy technologies, biorefineries, and cellulosic feedstocks. For example, over the past five years, under the Bioenergy Program for Advanced Biofuels, there was $192.5 million allocated to advanced bioenergy producers that used feedstocks such as grain sorghum and soybean oil to promote increased production of renewable fuels. Another new program in the 2008 Farm Bill was the Biomass Crop Assistance Program, which financially supported the establishment of purpose-grown energy crops including switchgrass, hybrid poplar and miscanthus in 11 different project areas across the U.S. Many of these projects are associated with major efforts to launch the next generation of renewable energy, including cellulosic biofuels. Farmers, landowners and businesses that were able to capitalize on these opportunities were able to make progress towards our nation’s renewable fuels standards, while mitigating some financial risk.
So the key question today for the bioenergy industry, especially bioenergy producers, investors and project developers, regarding the 2014 Farm Bill is “WIFM,” also known as What’s In It For Me. Here is a quick rundown as it relates to bioenergy, biomass, and biobased products:
Loan Guarantees. A previously established program focused on providing loan guarantees has been expanded to apply to renewable chemical and biobased manufacturing businesses as well. Mandatory funding for the next three years is $200 million, with additional discretionary funding up to a total of $375 million.
Repowering Assistance. This program had $35 million in mandated funding in the 2008 Farm Bill and provided an avenue for existing biorefineries such as corn ethanol plants to transition their operations from fossil fuel energy over to a biomass-based source. In the 2014 Farm Bill, mandatory funding is reduced down to $12 million for fiscal year (FY) 2014 only, and discretionary funding of $50 million spread over the 5 years life. Mandatory funding is the only allocation one can bank on being there today, especially with the fiscal challenges the U.S. is facing. Thus, if this program fits some business goals, the best chance of funding will be before September.
Bioenergy Program for Advanced Biofuels. While this program has made a notable impact by supporting first generation ethanol plants running on grain sorghum and biodiesel production, mandatory funding declined from $300 million from the 2008 Farm Bill to $75 million for the 2014 Farm Bill ($15 million per year). While total funding distributed in FY 2013 was only $14 million, this is significant drop in the total program funding compared to the last Farm Bill. This cut is proposed as the RFS calls for continued increases in advanced biofuel volumes.
Biomass Crop Assistance Program. The BCAP program has been extended with some proposed modifications which include:
Reduction in establishment program for perennial energy crops with the cost share declining from 75 percent in 2008 Farm Bill to 50 percent in 2014 Farm Bill, and a new limit of no more than $500 per acre for land in approved project areas.
Reduction in the matching payment for farmers ($1 per ton from BCAP for each $1 per ton from the biomass buyer) for collection, harvest, storage and transport of feedstock from a maximum of $45 per ton in the 2008 Farm Bill down to $20 per ton in the 2014 Farm Bill, the eligible timeline for receiving funds of two years is maintained,
Total BCAP program funding including establishment and matching payments is mandated at $25 million annually over next 5 years for a total of $125 million. The bill also requires that at least 10 percent and no more than 50 percent of funds be reserved for the Matching payments
Crop Insurance. The 2014 Farm Bill adds sweet sorghum, biomass sorghum, sugarcane, and pennycress as specific priorities for research and development regarding crop insurance which are crops of interest for certain bioenergy technologies. Additionally, the bill also specifically requires that an emphasis is placed on development of insurance to support biomass sorghum and sweet sorghum that is used for renewable biofuel, renewable electricity, or biobased products, including research on market prices and yields, to provide protection for production and/or revenue losses for those crops.
As the 2014 Farm Bill continues through the process to become law, additional opportunities may be elucidated, and further guidance will become available as the rules are promulgated. Keep in mind that the federal government operates on a fiscal year cycle that runs from October to the following September. This means that funding allocated for FY 2014 is typically allocated from October 2013 until September, and by the time the policy is approved in late February, it will be half the way through the FY 2014. Nonetheless, one would expect that the administration has been thinking about many of proposed regulations and will be positioned to move prudently on the implementation of the 2014 Farm Bill. It will be important that parties interested in these programs understand the specific eligibility and timing requirements to ensure the best chance at leveraging these opportunities into the business.
Kyle Althoff, President, Equinox LLC
Equinox LLC is a consulting firm dedicated to delivering financial, operational, and strategic solutions to our clients in the agribusiness, food and energy industries. Equinox provides services including Financial Planning & Analysis, Project Development, New Business Formation and Start-up, Strategy & Capital Planning, Policy Analysis, Operations Management, and assist in proposal for Grant and Incentives at the state and Federal level. The firm has proven experience in developing biodiesel, corn ethanol, and cellulosic ethanol plants & feedstock supply chains.