What’s wrong with this picture?
1. U.S. farmers produced about $19 billion of soybeans last year, nearly half for export. China is the biggest export market, which means the soybeans travel a long, long way.
2. Soybeans can be turned into biodiesel fuel, to run trucks, tractors and cars with diesel engines.
3. Many family farmers are struggling, and they could use a new source of income. They also use lots of diesel fuel to run their equipment.
4. Today, virtually all of our diesel fuel comes from oil, and we import about 60% of our oilâ€”with the top five sources being Canada, Mexico, Saudi Arabia, Venezuela and Nigeria.
It doesnâ€™t make a lot of sense, does it?
It didn’t make sense to three Arkansas brothers who grew up on their family farm named Troy, John and Jeff Hornbeck. This week, I paid a visit to Troy, who is 45, and John, who is 40, at their modest offices in a central Arkansas town of about 3,500 people called Dewitt. Jeff, the eldest brother, was out in the fields.
The Hornbecks have come up with a cool idea: They are building a biodiesel plant just south of Dewitt to serve the areaâ€™s farmers. If all goes according to plan, their plant will buy soybeans at prices comparable to, or perhaps even slightly higher, than what local farmers are getting now. They will then turn the soybeans into diesel fuel, which they will sell back to those same farmers, at a price less than what the farmers pay now for petroleum based-diesel.
â€œNot only is it good for the farmers, but itâ€™s good for the economy and for the environment,â€ Troy says.
Without intending to, the Hornbecks have stumbled upon an approach to business that has been called The Small-Mart Revolution, in a book of that name by Washington author Michael Shuman. (I interviewed Michael last year and wrote about his book here and here.) Michaelâ€™s vision is that local businesses should support one another, keeping more money in local economies, to everyoneâ€™s benefit. This is exactly what the Hornbecks want to do. Theyâ€™ve even borrowed the money to build the plant from a local lender, the Stuttgart, Arkansas-based Farmers and Merchants Bank. (“In today’s world of consolidation, buy-outs and mega-brands, we’re satisfied just being your hometown bank.”)
There is, however, a global twist to their plan. The Hornbecks began as farmers, growing seed and grainâ€”rice (the big cash crop around here), soybeans (their specialty) and wheat. Over the years, they diversified, getting into soybean research and development, starting a business that consults with farmers and does their bookkeeping, and launching their biodiesel venture. Their research took them to Argentina, where they met and hired engineers to design the biodiesel plant. To save money, they have ordered most of their equipment, which will extract the oil from soybeans and then convert it into a diesel fuel, from Argentina. So they are building a local business by importing the expertise and capital goods they need from thousands of miles away.
Still, itâ€™s clear that the Hornbecks are largely motivated by their desire to build tighter relationships with Dewitt-area farmers. At least for they moment, they expect to buy all the soybeans they need and sell all the biodiesel fuel they produce to farmers who work within 50 miles of Dewitt. The Hornbecks envision providing price breaks or special deals to those farmers who buy their seeds, then sell them their soybeans and subsequently buy their biodiesel.
Iâ€™ve learned from other farmers this week that the rising costs of energy have whacked their business in the last year or two. Rice is the big cash crop in Arkansas, and you need to flood the fields to grow it; most farmers do so by pumping their own groundwater, which is â€œfreeâ€ but requires vast amounts of diesel fuel or electricity to get out of the ground. Says John: â€œWeâ€™ve got to keep the farmers in business because otherwise weâ€™d go out of business,â€ said John.
â€œWe used to pay 65 cents to $1 for diesel,â€ Troy said. â€œLast year, we were paying $3 a gallon. Itâ€™s about $2.50 now.â€ Heâ€™s pretty sure that they can sell biodiesel for less that that; the Hornbecks recently got some unexpected help from the state legislature which enacted tax incentives for biodiesel producers.
Of course, this is a green businessâ€”not only does biodiesel emit fewer greenhouse gases than oil, but the Hornbecks intend eliminated the shipping costs and pollution created by moving soybeans out of the state (and the nation) as well as the costs of importing oil from the Middle East, Africa or Latin America. One of their cousins, by the way, is about to ship out to Iraq.
The Hornbecks will begin making biodiesel later this year, and they expect to ramp up production to about 7 million gallons a year. They estimate that farmers in Arkansas County, of which Dewitt is the county seat, consume about 9 million gallons of diesel fuel.
Interest in biodiesel, as it happens, is picking up all across Arkansas, according to this lengthy article in the Little Rock Free Press, which mentions the Hornbecks. They’re calling their biodiesel biz Home Grown Energy. Nice.