Irate Mulch Industry Awaits New Rules on Biomass Subsidy Program

By P.J. Heller

Mulch producers — angered over a federal government program that has already seriously impacted their industry — are anxiously awaiting new guidelines due out later this year for the Farm Service Agency’s Biomass Crop Assistance Program.

While the program’s goal of providing financial subsidies to encourage cultivation of new biomass crops has generally been endorsed by mulch producers, the actual result of BCAP has been to create a crisis in the mulch industry and chaos in the marketplace, according to mulch company officials.

“The intentions were right but it’s gotten dangerously out of hand,” says Steve Liffers, president of Coastal Supply in Dagsboro, Delaware. “They (government officials) have put this industry in jeopardy. Their attitude is if they wipe out this industry, it’s for the greater good.”

“We’ve been put at a real competitive disadvantage,” adds John Leber, general manager of Swanson Bark & Wood Products in Longview, Wash. “Basically, they’re throwing an awful lot of us under the bus.”

The mulch industry, however, doesn’t plan to go down without a fight.

“We’re doing everything we know how to do,” says John Spencer, chief executive officer of Mulch Manufacturing in Reynoldsburg, Ohio.

That includes meetings between mulch company representatives and government and elected officials. The Mulch and Soil Council encouraged its members to wage an aggressive letter writing campaign during a government-imposed comment period that ended in early April. A suggested industry letter contends the government subsidy program has not only created shortages of raw materials, but has prompted excessive price increases for those materials. Such an impact, the letter warns, “will force industry-wide closures.”

     “Using $2 billion in taxpayer money to redistribute raw materials in existing markets which eliminates environmentally beneficial companies supporting rural development and employment worth hundreds of thousands of jobs with no gain in new biomass resources is a consequence that we believe was not intended by Congress,” the letter states.
     The ire of the mulch industry — not to mention composite wood manufacturers and paper, pulp and packaging companies among others — is aimed directly at the Biomass Crop Assistance Program, or BCAP, which was part of the 2008 farm bill. The BCAP provision was designed to provide a subsidy to forest and agriculture land owners for eligible biomass material delivered to a qualified biomass conversion facility. As of April 16, more than $185 million in subsidies had been doled out, according to the U.S. Department of Agriculture.
     Those payments and new applications for collection, harvest, storage and transportation of eligible materials were put on hold while government officials sought comment on final rules for the program. The comment period ended April 9 and more than 24,000 responses were received, according to government officials.

“We’ve very much aware of the concerns of the mulch industry, and we’re listening,” says Todd Atkinson, a senior policy advisor in the Farm Service. “We’ve had a large volume of mulch suppliers submit formal comments on the proposed BCAP regulation. Every one of these comments will receive careful examination in the development of the final BCAP rules.”

     Those rules are not expected for months.
     Exactly what those new rules will entail is unknown, although there have been hints that they might limit the use of so-called “higher-value” resources as well as putting a cap on the funding for the program. The mulch industry is essentially lobbying for a more level playing field, although there appears to be varying opinions on just how to accomplish that.
     Those opinions range from having forest products excluded from the list of items eligible for BCAP funds to including mulch producers as those eligible for subsidies.
     “Either the government needs to get out entirely or rewrite it to accomplish the original goals,” Leber suggests.

The Mulch and Soil Council offered four recommendations to address the issue:

· Freeze BCAP funding of forest products until “higher-value” resources are properly defined and protected from the temporary, artificial and unfair market conditions created by BCAP.

· Focus BCAP on the original objective of incentivizing farm production of new, renewable biomass crops.

· Limit BCAP funding for the forest products industry to establishment grants for new tree farms dedicated to expanding biomass supplies.

· Assure America’s ability to meet our own carbon reduction goals by continuing tax credits to U.S. companies for utilization of biomass energy technologies and enforce the rules prohibiting taxpayer subsidies of foreign-owned companies.

Industry officials complain that many of the plants receiving BCAP money are producing fuel pellets or pucks which are then being shipped overseas.

“It doesn’t seem like the right thing to do with our natural resources,” says Spencer, who would like to see products created with BCAP funding banned from being exported.

“Why are we considering funding an industry with government money to consume our raw materials to make products which will be shipped to Europe and Asia so they can meet their Kyoto protocol requirements at the expense of damaging or destroying our own strong mulch industry in this country and consuming our raw materials,” he asks.

“In a few years it will be necessary for the United States to meet their own Kyoto protocol,” he says. “If the BCAP program is going to continue, then the wood pellet/puck export market should be excluded as an acceptable product.”

Leber, too, expresses concern about the overseas shipments.

“I have a problem with it personally that the government is going to subsidize exports,” he says. “The money that goes to buy the fuel that makes pellets is then going overseas by a substantial percentage.”

Spencer, among others, points to the fact that mulch is the “ultimate green industry” while biofuel plants may leave something to be desired.

“Power plants and fuel producers will still create some level of pollutants through the consumption of energy in the processing cycle or by burning the product,” he says. “It seems completely counter productive to damage one industry that is already benefiting the ecology to start a new industry that will be less environmentally friendly.”

     Leber says he doesn’t believe there was “evil intent” behind the original measure but that it just “ran amok,” an opinion echoed by others in the industry.
     Notes Liffers: “Here’s an example of where the system has gotten completely out of control and completely overlooked an entire industry and doesn’t seem to care.”
     Leber’s company has been forced to pay double for raw materials, costs which he says cannot be passed on to clients due to previously negotiated contracts.
     “We eat it,” he says of the cost differential. “We have to honor those (contracts) through the fall. The fact that the price jumped and nobody saw it coming, that’s not their problem.”

Spencer and others note that even a small change in material costs can have a huge effect on their businesses due to existing contracts, coupled with the small margins available to producers.

“It is highly feasible that the effect of BCAP at the beginning of a season could dramatically impact the cost and availability of the raw materials required to satisfy contractual obligations to customers by producers. This could result in default and possibly failure of some companies,” he warns.

     At Coastal Supply, Liffers reports that demand for mulch has “skyrocketed” this year, due in part to a recovering economy.
     “We’re right in the middle of a historic season,” he says. “The April season exploded like no other season.”
     The demand for mulch — and the reduced supply caused by raw materials being diverted for biofuels — prompted Liffers for the first time to hire someone to handle procurement in order to source material.

“We’re having to go further for supplies. We’re having to pay more for supplies. We’re having to deal with significantly more buyers to get the same amount of material,” he says. “Before, people would come to us.

“There is a crisis going on right now,” he adds. “There is a shortage of mulch.”
Spencer also laments the supply shortages and the higher prices.

“It (BCAP) drastically affected the availability of wood fiber for our business,” he says. “For this season, we seem to have squeaked by. We have managed to keep our supply at the level sufficient to supply our demand this season but we have had to work a whole lot harder and turn over a lot more stones to find sources that we've never had to do before.”

He reports that his company has also gone into the logging business.

“We have purchased logging equipment and we’ve got people out in the woods harvesting treetops, trees that are too small for lumber, in order to bolster that supply,” he says. “That effort is accounting for about half our supply, which we have never done before.”

While speculation continues about what the new rules may contain, there have been hints that the government’s push for advanced biofuels, renewable energy and biobased products may take precedence.

“What we would like to see happen is they protect the mulch industry in some way so that this bill doesn’t destroy us all or run the price of mulch up to where it’s not competitive any more,” Spencer says. “We have to wait and see.”