USDA Considers Biofuel Initiative

August 4, 2000

USDA is considering an initiative to accelerate the use of bio-based fuels and products by expanding and promoting increased ethanol and biodiesel production. The proposal includes incentive cash payments to bioenergy producers who increase purchases of eligible farm commodities and convert those commodities to bioenergy production.

Public comment is being accepted on a variety of issues:

--Producers of what forms of bioenergy should be eligible for program payments? Ethanol and biodiesel are proposed in this rule.

--What agricultural commodities used in bioenergy production should be included in the program? This rule proposes potentially making payments on barley, corn, grain sorghum, oats, rice, wheat, soybeans, sunflower seed, canola, crambe, rapeseed, safflower, flaxseed, and mustard seed used in either ethanol or biodiesel production.

--At what facility capacity should program payment rates change to account for plant efficiency variances by eligible program commodity? This rule proposes making larger payments to plants with under 30 million gallon per year capacity than to plants with 30 million gallon or more capacity.

--How should payment rates be established, especially for commodities without CCC announced terminal market prices? This rule proposes making payments only to commodities with established CCC announced terminal prices.

--When payments are limited by the budget, how should payments be distributed? (a) Capped at a certain dollar amount or percentage of total payments. For example, no more than $X or X percent of total funds available to any one firm; (b) Prorate payments to eligible producers over the quarter or fiscal year; or (c) first come, first paid basis. This proposed rule uses a combination of all of the above by having a sign-up period before the fiscal year begins to determine a payment factor and then using the payment factor on a first come, first paid basis. A payment restriction is proposed.

--Should the payment factor be capped as proposed in this rule at 100%, and, if so, should the cap be 100%?

--How should increases in bioenergy production be established for the various commodities receiving program payments?

–What are the expected impacts of this program on agricultural commodity prices, fossil fuel energy prices, farm income, bioenergy production and prices, and international trade in agricultural and energy products?

USDA proposes that eligible bioenergy producers with fewer than 30 million gallons annual production capacity receive a higher payment rate than bioenergy producers with 30 million gallons or more annual production capacity to encourage the number of bioenergy producers, increase the incentive for smaller plants, and promote expansion of bioenergy production.

A higher incentive is needed for smaller plants because, compared to larger plants, they tend to produce a more limited product range during refining, are less able to capture economies of scale, and may not have access to attractive risk management strategies, says USDA.

Comments on this rule must be received on or before Aug. 28 to be assured of consideration and sent to Alex King, Acting Deputy Administrator, Commodity Operations, FSA, United States Department of Agriculture (USDA), STOP 0550, 1400 Independence Avenue, SW., Washington, DC 20250-0550, telephone (202) 720-3217 or e-mail address, Alex-King@wdc.fsa.usda.gov.