Covering Your Grass

Some ventures to produce cellulosic ethanol propose using dedicated energy crops such as switchgrass and miscanthus as feedstocks. However, unlike row crops, dedicated energy crops are not supported by crop insurance programs. What is being done to level the playing field?
By Ryan C. Christiansen | July 08, 2009
As U.S. policymakers and regulators shift their focus from corn starch-based ethanol to lignocellulosic biomass-based ethanol the agricultural economy attempts to follow suit. Many sources of biomass are being identified as possible feedstocks, including dedicated energy crops such as switchgrass and miscanthus.

Of these two perennial grasses, switchgrass is receiving the most attention. According to the U.S. EPA, the USDA's forest and agricultural sector optimization model (FASOM) indicates it is feasible to expect that nearly 1 billion gallons of ethanol per year will be produced from switchgrass by 2022. The majority of the crop is expected to be grown in Oklahoma.

The EPA notes that in southern states such as Oklahoma, where perennials develop more quickly in spring and remain viable until later in the fall, dedicated energy crops have the potential for higher yields per acre than row crops.

The EPA reported its findings in late May as part of its proposed regulations for the second stage of the renewable fuel standard program. The prediction that 1 billion gallons of ethanol might be produced each year from switchgrass could be a modest forecast, according to the EPA, because the FASOM model does not include all categories of grassland and rangeland captured in the USDA's major land use datasets. The EPA says it constrained FASOM to assume that 32 million acres of land would remain in the USDA Conservation
Reserve Program, consistent with the 2008 Farm Bill.

Some in the agricultural and ethanol industry agree with the EPA's assessment that dedicated energy crops will play a significant role. Last summer, more than 1,100 acres of switchgrass were planted in Oklahoma as part of a demonstration project that is being managed by the Samuel Roberts Noble Foundation Inc. The independent, nonprofit institute conducts plant science research in Ardmore, Okla. and recently received more than $1.2 million from the National Science Foundation and the Oklahoma State Regents for Higher Education through the Oklahoma Experimental Program to Stimulate Competitive Research for continued studies to improve varieties of switchgrass for cellulosic ethanol production. The foundation has also teamed with Oklahoma State University and the University of Oklahoma through the Oklahoma Bioenergy Center to develop new switchgrass varieties for ethanol production.

In Vonore, Tenn., Dupont Danisco Cellulosic Ethanol LLC is building a 250,000 gallon demonstration facility that will produce cellulosic ethanol from multiple feedstocks, including switchgrass. The University of Tennessee continues to enroll farmers in a state-funded incentive program to stimulate the establishment of switchgrass. Another program, known as the 25Farmer Network, is coordinated through the Memphis Bioworks Foundation's AgBio initiative and consists of 25 western Tennessee farmers who will plant five acres each of experimental crops, including switchgrass.

Meanwhile, energy crop developer Ceres Inc. announced in April that it will work with University of Georgia researchers to develop new high-yield switchgrass seed varieties and improved crop management techniques for the southeastern United States. In May, Ceres announced that, based on results from a nationwide network of field trials, switchgrass can produce substantially more biomass than previously reported, as much as 50 percent more than the government's projected yields for 2022.

Also, farmers in Missouri, Kentucky, Illinois, and Kansas have signed production contracts with Agrosil Energy LLC to grow giant miscanthus. The company announced it will provide farmers with the rhizomes and specialized equipment necessary to plant a total of 20,000 acres in 2010. Agrosil expects the crops will yield 15 tons per acre beginning with the first harvest in 2012 when custom harvesting crews and machines will harvest the biomass.

Managing Risk
For farmers, being first in the field to plant dedicated energy crops can be risky. According to the EPA, it takes 10 to 12 years to recover startup costs. It takes two years to establish a miscanthus crop, for exampleif the crop can survive its first winterand maximum yields won't begin until the third year, depending on soil fertility.

To help farmers in general to manage risk, the USDA's Risk Management Agency provides insurance policies for more than 100 crops. However, neither switchgrass nor miscanthus is on the list of crops covered under the 2008 crop insurance program. Alternatively, the USDA's Farm Service Agency has a noninsured crop disaster assistance program (NAP) to provide financial assistance to producers of uninsurable crops, but dedicated energy crops are not eligible for that program, either.

The unavailability of crop insurance is a problem for many potential growers. Miscanthus-related studies by researchers at the University of Illinois at Urbana-Champaign and switchgrass-related studies at Iowa State University indicate reluctance on the part of farmers to adopt dedicated energy crops in the absence of crop insurance. During a recent Nashville Public Radio interview, U.S. DOE Biomass Director Jacques Beaudry-Losique addressed the issue. "It's very hard to ask a farmer to switch from existing crops to a crop that does not exist, that doesn't have a market, that doesn't have a lot of the basic tools such as crop insurance and things like that," Beaudry-Losique says.

Crop insurance is "something that the growers are very used to, because that's what they do on a routine basis," says Richard Sheppard, president of Agrosil. "It will affect the adoption of [energy crops] and we will have to find people who will be willing take a little bit more risk."

"They (farmers) definitely are bringing it up a lot," says Hillary Spain, coordinator for Tennessee's 25Farmer Network. "Through our network, we had three training programs before we ever selected crops to plant and that was one of the questions that the farmers had. How are we going to manage our risk?' I think crop insurance is very important, because farmers are going to be hesitant to commit to a larger amount of acreage if they don't have anything to kind of guarantee that they are covered, because they could be out a whole lot of money that could eventually put them out of business. When it's more risky, lenders are sometimes unwilling to loan funds."

Anna Rath, vice president of commercial development for Ceres, says farmers are communicating to Ceres that crop insurance for dedicated energy crops is important. "As we were getting out into the community and meeting with growers, we were getting the question back about whether these kinds of crops were going to be covered by crop insurance programs because, obviously, they consider those programs to be very important for their businesses," she says. "It's important to allow growers to hedge certain risks to ensure themselves that they are going to be able to have a consistent livelihood, even in an industry that's very dependent on the vagaries of weather and other things."

Rath testified at a U.S. Senate agriculture subcommittee field hearing in Brookings, S.D., in April 2007 about the importance of crop insurance. "As the cellulosic biofuels industry develops, we believe it is of critical importance that dedicated energy crops not be disadvantaged relative to other crops in terms of the safety net that the government provides for these crops," she testified. "This safety net could come in a form similar to existing crop programs or could be substantially different. The goal must be to allow growers to make decisions about which crops to grow based on market forces, not based on which crops are or aren't supported by government programs. Toward this goal, we suggest a pilot program to begin collecting the data that will be necessary to enable a program like crop insurance. The objective of this pilot program would be that by the 2012 Farm Bill, the necessary data will have been collected to enable the roll-out of a crop insurance program for dedicated energy crops."

During the same period, the South Carolina Biomass Council urged its constituents to communicate with members of Congress about the need for crop insurance for dedicated energy crops, including for switchgrass and miscanthus, and at the very least to offer catastrophic insurance under the NAP.

The testimony from Rath and others struck a chord and the 2008 Farm Bill included a provision requiring the Federal Crop Insurance Corporation to study developing insurance policies for dedicated energy crops, including annual and perennial crops that are grown as feedstocks for renewable biofuel, renewable electricity or biobased products and are not typically used for food, feed or fiber.

According to Shirley A. Pugh, director of public affairs at the Risk Management Agency, a study regarding a policy for switchgrass as a dedicated energy crop determined that "while the crop could be suitable for coverage under the existing pasture, rangeland, and forage concept, the industry did not appear to be mature enough for inclusion at this time." In other words, unless some further action is taken outside of and before the 2012 Farm Bill, it appears that no insurance will be available for switchgrass as a dedicated energy crop for the foreseeable future. Further details about the Risk Management Agency's determination for switchgrass were not available at press time in mid-June.

Cause and Consequence
The EPA notes that because dedicated energy crops have not been grown in agricultural sectors, they have not been extensively researched and developed for optimization. This lack of data might be the biggest hurdle facing crop insurance proponents. "It could be a chicken-and-the-egg problem," Sheppard says. "OK, there's not enough acreage out there; but there isn't enough acreage out there because crop insurance isn't available."

Spain says to make up for the lack of insurance, the Tennessee Department of Agriculture is providing growers in the 25Farmer Network $500 per acre during the first year. "We have (also) been providing the seed for them," she says, "and so this kind of manages their risk. If something happens to the crop, it covers that."

The federal government's ostensible inaction toward insuring dedicated energy crops has led some growers to believe the feds are being wishy-washy. "I don't think we can count on it from the government," Sheppard says. "They will never react fast enough. The U.S. is so far behind on biomass compared to the U.K. and the EU and, for some reason, whenever you talk to finance people or project people or anyone else, they don't pay attention to anything that's ever been done anywhere else. If it's not invented here, they won't do it. But the U.K. has been growing this stuff for well over a decade and the EU has for many years. Why can't we use that [data] and move on with biomass if the government is really serious about it? I'm never sure if the government is ever serious about anything."

Spain says policymakers need to be made more aware of rural issues. "A lot of them don't come from a rural agricultural background," she says, "so they just hire in people to advise them. I think it's important that we just make the policymakers aware of what's going on. I sometimes feel like on the one hand, they're promoting alternative energy, but they're not looking at the barriers and trying to find out a way to accomplish what they need to accomplish."

Sheppard says if a local market for Agrosil's biomass doesn't pan out, the company will take its feedstock elsewhere. "Our backup plan is that we will just export everything and deal with the people who understand stuff and know stuff and are dealing with reality."

Ryan C. Christiansen is the assistant editor of Ethanol Producer Magazine. Reach him at rchristiansen@bbiinternational.com or (701) 373-8042.