Today I am reposting some early, simple economic analysis of the potential negative impact a Fibrowatt plant would have on Shenandoah Valley agriculture. This is a long post, combining several days worth of research and analysis.
To summarize, these things don't come without costs, without negative economic impacts. As a privately held company, only Fibrowatt's owners stand to gain from the plant. There are substantial hidden costs that the farmers and communities would find as a Fibrowatt plant came on line...from reduced farm revenues due to fixed price contracts for the litter, to higher input costs due to their competition for raw materials. Here's the earlier post:
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I found an article (linked below) in the Winston-Salem, NC paper about Fibrowatt’s failure to negotiate a sales agreement for their power with Progress Energy and Duke Power, the two major utilities in the Carolinas. (Full disclosure: my family used to own Progress Energy stock). Here’s an excerpt from the article:
“…the utility companies didn't mention Fibrowatt by name, but indicated that the "single poultry waste" generator proposed prices that would consume a significant amount of the companies' money that they need to buy other types of renewable energy such as solar and wind power.”
Readers will recall that [last year] I posted an excerpt from a Page County farmer’s analysis of the negative economic impact Fibrowatt could have on poultry operations – basically, because they would seek long-term agreements with poultry farms to buy up used litter, they would seek discounts over current market prices, which would reduce this source of revenue for our farmers.
This development in the negotiations with the NC power companies means that Fibrowatt will put a lot of pressure on local farmers in order to have better control on its own costs, disregarding the interest of those very farmers - who they also refer to as "partners!"
In fact, the farmer’s letter I posted went on to discuss that the Fibrowatt offer was lower than current market competitive rates, a market that is supported by state and federal level agriculture agencies, which will pay a benefit to farmers outside of Page County for buying and spreading the local litter. The farmer closed his letter with this note:
“As far as poultry growers getting more in terms of total sales dollars for their litter [from Fibrowatt], I don't really see that happening because of the current price of litter. I see a profit margin decrease happening for poultry growers instead of an increase.”
So that is part one of Fibrowatt’s squeeze on poultry farmers – hitting the revenue side of farmers’ litter operations, reducing their total sales dollars. There is also a squeeze on the cost side, which Terry Walmsley discussed in the Page County BOS presentation last [March].
Terry mentioned a couple of things that needed to be done with the litter to ensure that it was a high-quality fuel for the burn process – and that one of the things that is done in the fuel storage room is to mix it with other “biomass” sources, including various raw materials that litter is produced from. In Minnesota, this can include sunflower seed hulls – so you have Fibrowatt actively competing with Minnesota farmers to buy these raw materials from the plant.
It is basic economics that when competition increases on the demand side, prices increase in the short term. Over the longer term, they may level out, but if production is increased to meet the new demand there will be pressure to keep market equilibrium at the higher price, or supplier/producers will switch to other commodities.
Here in Virginia, a large portion of litter comes from wood shavings, which are apparently already in short supply within the Shenandoah Valley region. This product was specifically mentioned as an example of what would be in the mix at the proposed Valley plant.
So once again, Fibrowatt will compete with local poultry farmers for resources, in this case, driving up raw materials costs.
For a company that claims to partner with the poultry industry, this “squeeze” – raising the costs of inputs and reducing total sales revenues – is an ironic concept. I’ve heard one of the leaders of the local poultry association tout Fibrowatt as a long-term savior of the industry in Page County. It is more likely that these costs will put the smaller operations out of business by making them economically unsustainable!
http://www2.journalnow.com/content/2009/aug/31/302350/fibrowatt-price-high-utilities-say/news-regional-surry/
...I also wanted to put up a summary of what I’ve learned about using chicken litter for fertilizer. I say summary because I am going to focus on three elements that are a component of chicken litter fertilizer – Nitrogen, Phosphorus, and Potassium, or N, P and K as they are listed in the periodic table.
In Page County and elsewhere in Virginia (and most other poultry producing states, as a matter of fact), chicken litter is used as an early-stage starter fertilizer in fields, especially those that produce animal feeds like corn and soybeans. Each of the three nutrients have their own value, and from the “Latest Scoop” article linked below, we see that on nutrient value alone, litter is worth from $40 to $45 a ton, yet costs in the $30 per ton range, including transportation an spreading. Meanwhile, buying fertilizer to provide these nutrients costs about $110-$130 per acre – per the “Input Costs” article linked below.
Fibrowatt plans to buy the “excess” litter and burn it to produce power. They say that the ash makes a good fertilizer, and a firm was started in close proximity to the Benson, MN plant to process and package the ash for resale to farmers. However, something happens to the ash when it is incinerated – the Nitrogen disappears, and the concentrations of P and K are increased.
From basic biology we learn that Nitrogen is essential to plant life. Chicken litter provides it, but Fibrowatt ash does not. So, if a farmer is forced to move to the ash as a fertilizer source, there will still be a requirement for a second application of N. It’s not efficient due to the double application, and fertilizer costs increase. The end result is more pressure on the farmers both in production costs and very likely in the margins they make from selling their products.
Phosphorus is a nutrient of extreme interest and the subject of much environmental regulation in the Chesapeake Bay watershed. Soils such as those in much of Virginia do not absorb the nutrient well, and there is a lot of wash off into the streams and rivers. This can be managed to an extent with riparian buffers, and proper timing of fertilizer. However, with a more concentrated application in the ash, it seems like the risks from this nutrient are only made worse, rather than improved.
I will leave aside the discussion about Potassium, except to say that it is present in all living cells, per Wikipedia, and essential to plant life. I am not aware of risks or cost impacts from its use – and welcome comments on the matter if readers are aware of any.
However, as with the input costs and revenue “squeeze” I discussed last week, here is another case where inserting Fibrowatt into the equation won’t create any benefits to farmers. It’s a great irony that the company markets itself to the agricultural sector as a “partner” – in Page County, Fibrowatt is even seen as a potential savior of the poultry industry – yet the economics of their impacts are increased costs and lower products. Their presence threatens the very existence of farming in the communities they are trying to go to!
http://southeastfarmpress.com/mag/farming_latest_scoop_chicken/
http://www.agecon.purdue.edu/topfarmer/newsletter/TFCW9_2009.pdf
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