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Congress set to debate the 2007 Farm Bill next week, which must be reauthorized

October 8, 2007


by Senator Danny Verdin

The rapid growth of the renewable energy industry demonstrates that Americans care greatly about their natural resources and that the future of rural America and agriculture correlates closely with our nation’s energy policy. Congress must act to maintain that growth and support a tremendous opportunity for rural communities and businesses.

Most of us readily accept that increasing our nation’s energy independence depends on our ability to rapidly develop and produce alternative forms of energy, such as biofuels. The growth and production of this new energy will primarily occur in our nation’s rural areas.

Supporters of renewable energy and the independence it brings also recognize that success relies on two critical factors: the availability of sufficient debt capital to meet the growing demands of the renewable energy industry, and local ownership of production facilities as a means of ensuring economic stability for the nearby agricultural operations and rural communities.

Congress has an opportunity to address both issues in the current Farm Bill. The Farm Credit System has served for 91 years as a farmer-owned, reliable source of financial services and products to agriculture and rural America. An amendment proposed to the Farm Bill in the Senate would enable more rural businesses engaged in alternative energy production to gain access to the Farm Credit System.

The capital requirements of the renewable fuels industry vastly exceed the capacity of any one sector of the financial services industry. Most local banks don’t have sufficient capital to make adequate loans on their own. “Ethanol Producer” magazine noted in its September issue, banks tend to “perceive the risk to be too great” and, in any event, suffer from a lack of underwriting expertise in this area. Banks consequently often team up with Farm Credit, the nation’s largest agricultural lender and a pioneer in financing the alternative fuels industry dating back to the early 1990s.

Few lenders outside Farm Credit have the expertise, capacity, and willingness to fund biofuels investments. “Ethanol Producer” also noted that, “For the most part, ‘Main Street’ lenders have yet to develop an understanding of the underwriting necessary for financing…biodiesel plants, anaerobic digester projects, wood pellets plants and other sources of renewable energy.”

Congress created Farm Credit in 1916 as a means of ensuring that farmers would always have a lender on whom they could rely regardless of the ravages of weather and price fluctuations, and the farmer-owned cooperative lender has focused on rural and agricultural financial needs.  However, antiquated eligibility criteria currently inhibit Farm Credit’s ability to provide more funding to the renewable fuels industry. Congress must act to modernize the eligibility criteria to include new technologies that process agricultural products. These technologies are key to our energy independence and the national security it brings.

If you’re a farmer who wants to invest in a biofuel plant, you can borrow from Farm Credit.  But if you aren’t a farmer, you can’t – even though your biofuel plant sits in a rural area and processes tons of material from the surrounding farms. Even though the alternative fuels industry got its start among the farmer-owned cooperatives served by Farm Credit, outdated eligibility requirements make it difficult if not impossible for Farm Credit to make capital available to these projects.

These and other alternative fuels also have the potential to rally local economies and put money and people to work. Rural towns that are involved in ownership of renewable fuels facilities can build a sustainable economic base on which to maintain their rural culture and quality of life. If farmers are able to join with other investors to develop alternative fuels, they can finally shed their dependence on the rollercoaster prices and their reliance on subsidies associated with commodity crops. Finally, proper financing of a successful alternative fuels sector will eliminate the financing of foreign oil production and the dangers it entails.

One example in South Carolina is a new biodiesel plant constructed and ready to begin operation in Estill. Located in Hampton County, on the I-95 corridor, this biofuel processing plant offers an opportunity for a depressed rural area in our state to benefit from innovative solutions to a national problem using the very same resources they have cultivated for generations.

Our federal legislators must support market-based opportunities for struggling sectors of our rural populations to grow prosperous again while simultaneously helping solve a national economic and security problem.

Renewable fuels could reduce the US trade deficit by billions. The parallel reduction on our dependence on foreign fuel sources strengthens our national security. It makes eminently good sense to allow more local businesses to benefit from Farm Credit’s ability to help them build a new economy for our state and our nation.


One Comment leave one →
  1. October 14, 2007 1:53 PM

    My wife and I are retired farmers who have held on to all their farm land. This biofuels thing can really create a market for corn and other crops as we already see. However keep a close watch on the development of
    hydrogen fuel that is going on at USC (the real USC).
    That could deflate biofuels in a hurry. We are both emotionally attach to cotton as that has always been the crop of choice in Lee County where the bulk of our farmland is located. So there is a touch of sadness in all of this. But things change as J. M. Eleazer said.

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