The Start-Up Barrier

Start-up of a new crop-to-fuel system poses difficult challenges. Farmers unfamiliar with a crop and uncertain of the longevity of the only market for that crop may be willing to risk very little on such a venture, particularly if the crop is a perennial that generates little revenue in the first two years of cultivation. Processors may be unwilling to invest a lot of money in a new facility if feedstock supply is uncertain. In this case, a collaboration between farmers, the processor, and interested government agencies is likely required. Long-term marketing or production contracts are required to satisfy farmers and processor that their needed market outlet and feedstock supply will exist. Some degree of establishment cost-share may be required to enable farmers to commit land and other resources to the project for years before any revenue is generated. This may be in the form of a loan that could be repaid over the life of the contract if the venture survives. Work to establish scientific support programs for the crop, as well as regulatory programs to permit chemical use and enable crop insurance coverage, must be completed very early in the process. Farmers and the processor should have adequate equity financing to carry them through the first few years of establishment and provide a subsequent sound basis for ongoing production. Product marketing contracts for major co-products are needed to assure market outlets for the processor unless they are selling into a very large market with many buyers and sellers. Even in the latter case, contracts that provide some degree of price assurance would be constructive. Terms for renewing contracts and re-negotiating terms are critical to good contracts.

In the case where the crop is an annual, farmers may be more willing to enter contracts with limited start-up investment. If the crop is an abundant co-product such as corn stover, contracts may not needed or they may be single season contracts with emphasis on timing of delivery, storage, transport, and pricing. In either case, the processor must have realistic expectations of what prices will be necessary in which locations to acquire the necessary supply. Contracts can determine such prices prior to planting.