Farmer Owned Ethanol Cooperatives

In the 1980s Minnesota farmers demanded a greater share of the benefits of the ethanol industry. Instead of a partial gas tax credit, the legislature agreed to pay producers 20 cents per gallon, as long as the ethanol was produced inside the state, thereby spurring economic development. While there was no limit to the scale of the ethanol facility, only the first 15 million gallons received an incentive, which encouraged smaller farmer-owned biorefineries.

According to the Institute for Local Self-Reliance (ILSR), this policy allows farmers to escape their traditional role as simply raw material suppliers to an increasingly concentrated processing and manufacturing and retail sector. Farmer-owners receive, on average, about 50 cents a bushel in dividends per year, and more than $1 per bushel in very profitable years. Farmer-owners can also use their ownership in an ethanol plant as a hedge against a drop in the price of their raw material. If the price of corn falls, so does the production cost of ethanol; all other things being equal, refinery profits and therefore dividends will rise.

The skyrocketing price of oil has created new opportunities for the expansion of ethanol and other biofuels. The challenge will be to ensure that farmers who produce these products get a fair share of the benefits. The ILSR also points out the danger of a trend towards building larger scale plants, which dramatically increases the energy costs of making the ethanol.

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