Friday, December 21, 2007

When is it time for a break?

Dairy farmers have reason to celebrate this holiday season. Milk prices are at record levels and look to stay high well into next year. Although costs have risen substantially (driven by the doubling of corn prices), everyone is making money and catching up after a terrible 2006.

I am about ready to turn off this computer for a few days. Our schedule has been slowing down all week, redeemed only by a meeting set up by our friends at Skagitonians to Preserve Farmland. We keep pushing forward where we can, but sometimes it's difficult not to feel like we've already started a undeservedly long holiday break.

Our farmers don't have to worry about any such feelings. Cows require just as much care on Christmas as they do any other day, regardless of the plans of relatives. All entrepreneurs expect their work to displace leisure at certain points, but dairy farmers are among the few who know this will happen for the duration. When things get busy for us next year, we can only hope to match their work ethic. To all our friends, Merry Christmas!

Friday, December 14, 2007

Is Farm Power working in the right part of the value chain?

Before we founded Farm Power, some people urged us to find a quiet corner of the renewable energy world and start a little service business; this was supposed to let us gain experience with minimal investment before eventually leading to a real energy-producing opportunity. It would also give us time to find the millions of dollars needed to create a project, perfectly reasonable advice given our limited resources.

We didn't take it. From the beginning, we have believed that what the renewable energy industry needs is not more service providers but more actual owners. As long as we count the number of small utility-grade (100kW to 10MW) green power installations in Washington on one hand, we continue to see an implementation problem. So we dived right in and committed ourselves to a business model where we owned and operated multi-million-dollar anaerobic manure digesters.

Our local dairy farmers understand capital-intensive business and took us seriously from the beginning. Their industry draws great numbers of service providers all trying to make money off the actual producers--equipment dealers, seed salesmen, drug companies, feed consultants, milk haulers, processing plants, and many others. All of these depend on a shrinking number of farmers who invest millions of dollars in the daily miracle of primary agricultural production: the sun, the land, green plants, now a baby calf, then milk.

The process of extracting energy from manure has less appeal than caring for animals but it is a miracle in its own right. When bacteria in liquid manure are kept comfortable at about 100 degrees Fahrenheit, they begin to produce methane (the main component of natural gas). We cannot duplicate this amazing process any more than we can synthesize a newborn calf or squeeze grass out of a pile of mulch. The further that society gets from the basic natural transformations that make life possible, the more easily "value creation" forgets the importance of the actual "creation" part and focuses solely on "value-added".

I recently finished Wealth and Democracy by Kevin Phillips; one of his main contentions is that economic superpowers rise with an emphasis on production and commerce but eventually begin to decline with an excessive focus on finance. The author traces this trend with the Dutch in the 17th century, the British in the 19th, and Americans during the past few decades. We have found plenty of companies in our industry that provide funding, market products, and consult. While we don't doubt that these businesses can be both useful and lucrative, they don't actually create value; they simply allow existing value to be realized more quickly and efficiently.

As children of rural America, we share with farmers an affinity for actually creating things. Eventually, courtesy of vast numbers of bacteria, we will produce electricity and a sawdust-like fiber from cow manure. By selling these and other products ourselves, we will control as much of the value chain after the initial creation as possible. But, in our opinion, finding the most profitable part of the value chain is answering the wrong question; until the renewable energy industry gets much closer to saturation, we must focus on starting new chains rather than latching on to existing ones. That is what is needed for farmers, America, and the planet.

Tuesday, December 4, 2007

Good enough on paper to count on in reality?

I just finished the latest version of the Farm Power pro forma, an enormous set of spreadsheets that peers far into the future and concludes that anaerobic digesters can actually make a profit in the long run. Compared to May, when the first version of the pro forma was completed, we have much more real data and far fewer estimates. However, our digester remains a paper project; in order to make the jump to reality, we need something more than elegant spreadsheets.

We found some of what we were lacking last week at the EPA AgSTAR conference, the country's only manure digester convention. This year people from across the industry gathered in Sacramento, giving the conference an unfortunate focus on California's dysfunctional utilities and environmental laws. The speakers list was not especially strong and some of the vendors brought more hope than actual experience. By the end of the first day, though, we had met the designer of our first-choice digester, the likely supplier of our engine-generator sets, and the owner of the engineering company that will build the whole project. We were finally able to take a few specific questions to the source and--more importantly--get a feeling for what it would be like to work with these suppliers.

We're getting a good feeling. These people are experienced, honest, and dedicated to the success of digester projects. Better than ever before, we can stand in front of farmers, investors, community members, regulators, and other stakeholders to assure them that Farm Power's team will make sure digester projects function as advertised or get back on track when they don't. That confidence isn't something we can express in numbers, but it's absolutely invaluable to making Farm Power a reality.

Saturday, November 10, 2007

Should we actually expect farmers to RSVP?

I was pleasantly surprised on Thursday when a dairy farmer called to confirm he would be attending our county-wide Farm Power lunch. See, we've visited 23 different families representing the vast majority of Skagit County's cows but figured we wouldn't know how many would show up until the food was actually served. Based on the responses we've been getting in person, we expect a good crowd--the word is out and the farmers want to hear more. Another guy--who I've never met and whose father didn't sound too enthusiastic--left an RSVP message this morning! After the end of harvest and manure-spreading season, the dairymen have a little more time and may be able to actually plan their schedules now.

We've also made progress getting quality attention from Andgar, the only real digester builder in the region. We brought potential investors up to visit their Lynden project and showed the engineers we've been dealing with that we actually can bring the necessary players to the table. Andgar will be presenting at the farmer lunch too, although we expect to focus primarily on our ability to help farmers with cow bedding (from digested fiber separated out after manure processing) and fertilizer (through increasing both total and inorganic nitrogen in the manure we return to them).

We'll have a little break around Thanksgiving, but for now we have a very exciting week ahead of us--lots of important interactions and decisions. We hope to have more good news to put here soon!

Thursday, October 25, 2007

When is a business truly local?

Farm Power is located in Skagit County, Washington. Our county has few features to boast about; halfway between Seattle and Vancouver B.C., agriculture remains its largest industry. With Skagit County's rural character and limited manufacturing base, median incomes are below the national average. Real estate development provided most of the business momentum during the last decade, but now this sector is stagnating.

One thing that Skagit County does still have is dairy cows. The valley has hosted roughly 15,000 milking head for the past few decades, in spite of plummeting farm numbers and enormous change in the rest of agriculture. Today, about a dozen dairy families own the majority of these cows. While this consolidation has been painful, land limitations have effectively capped farm sizes and even the biggest Skagit farmers are out with their cows every day.

Consolidation has a silver lining--it is easier to communicate with the surviving operators. Farm Power's principals went to high school with some of the same dairy farmers with whom we now discuss manure. Since medium-sized dairy farms almost never have someone in the dark closets they call offices, the accepted way to contact farmers is by tracking them down in person. We at Farm Power have spent the last week doing just that. Having been on many of the farms as children, we know where to go to find second- and third-generation owners. We also visited several farms for the first time, and there is no substitute for shaking a dairy farmer's hand and commiserating about the business.

In short, securing the Farm Power supply chain depends almost completely on relationships. Some of these relationships date back to our parents or to the school playground, while others have started only in recent months. We have benefited enormously from positive coverage in our local newspaper, read by most of the county--and from the common dairy heritage shared by those who trace their roots to the Netherlands. With the fiber bedding product we expect to produce, we also have something to offer the dairy farmers, further deepening our interaction.

Both Farm Power's inputs and products will typically only travel a few miles, a true mark of a local business. The founders operate on their home soil, another argument for being local. But in the final analysis, it is the complicated web of relationships that make Farm Power truly local, plugged in at a far deeper level than supplier-buyer or seller-customer. Farm Power cannot be understood separately from Skagit County; come see our home, our people, and--last but not least--the cows!

Monday, October 22, 2007

What is an MBA good for anyway?

If it's a degree in Sustainable Business from Bainbridge Graduate Institute, an MBA can be good for saving the world. For Farm Power, the education meant learning the language of business while constantly remembering that business has immense power to do good. BGI is one of the first green B-schools, conveniently offering a hybrid online/monthly-residency program based on Bainbridge Island, Washington.

The school is growing rapidly, so the alumni numbers remain low. About thirty other students graduated from BGI in 2007, and two of them started companies while studying: Olympic Biofuels sells biodiesel on the west side of Puget Sound, and SaulGood Gift Co. sells sustainable gift boxes in Canada. Unlike Farm Power, these companies actually have revenue! They provide inspiration that a degree sometimes simply associated with climbing the corporate ladder still has entrepreneurial energy.

Friday, October 19, 2007

Farm Power is the Answer...what was the question?

What is an anaerobic manure digester anyway? If you, gentle reader, continue to return to this blog in coming months, you will learn more than anyone should ever need to know about manure-to-energy technology. However, for my first posting, a manifesto: Farm Power is a little company in Skagit County, Washington, dedicated to the preservation of dairy farms, agricultural communities, and civilization as we know it. For our urban readers most concerned about the third goal of Farm Power, let me explain the broader vision.

Are you concerned about sprawl? Farm Power will bring new money to farmers, allowing them to continue using their land profitably in the face of rising property values. Rather than selling off ground for development, healthy dairy farms will expand by purchasing land needed for more crop production.

How about global warming? Farm Power will cut emissions of methane, a greenhouse gas at least twenty times more potent than carbon dioxide. Within just a few years, the continuous effect will be like parking thousands of cars.

Is renewable energy your issue? Farm Power will generate electricity from the untapped potential of manure; just five cows can power a typical house year-round. In places like Western Washington, manure provides local energy in signficant quantities where wind and sun cannot.

Perhaps economic inequality is your cause. Farm Power will reverse the flow of financial resources out of poorer rural communities, investing millions of dollars in new income-generating assets. Local workers, businesspeople, and investors all benefit from keeping money closer to home.

Nitrogen pollution; sustainable agriculture; fuel vs. fuel competition; Farm Power addresses some of the largest problems we face. Stay tuned for more on how!