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Food Security Alert

U.S. Food Supply Is At Risk – A National Security Crisis

Per the attached Food Security White Paper, the U.S. food supply is at risk. This situation is a real and serious national security crisis.

CONTACT
Jack Oswald, CEO,
415-986-8300
joswald@syngest.com

The risk comes from the fact that half (50%) of our supply of critical nitrogen fertilizer is coming from overseas sources. The largest Supplier, Trinidad (55% of foreign supply) may only have enough natural gas reserves for a few more years of production. The second largest supplier, Russia (21% of foreign supply), has proven to be unpredictable and willing to use a heavy hand in global political dealings. With the recent episode whereby Russia interrupted natural gas supplies to the EU supposedly by way of a dispute with the Ukraine, we can no longer turn a blind eye to the risks. To clarify this risk by way of analogy, when Russia turns off natural gas to the EU, people can always wear warmer clothes or use other fuels to keep warm. If foreign sources of nitrogen fertilizer, such as Russia, reduce or cut off supply how will we grow our food? There is no reasonable substitute.

What We Can Do About It

There are a number of new technologies that have begun to emerge that are able to create nitrogen fertilizer from renewable resources. Some of these are already commercial or very near so in their stage of development. The most promising for the immediate and near terms are those that convert crop waste (corn cobs, corn stover, etc.) into anhydrous ammonia (the basis of all nitrogen fertilizer). There are also other techniques under development that are able to use renewably generated electricity from wind, hydroelectric, geothermal or solar systems into the same type of fertilizer.

As a country, being net importers of both anhydrous ammonia as well as natural gas (the raw material that is used to make virtually all ammonia) it is not feasible to solve this crisis by going back to the old ways of producing it. Virtually all current U.S.-based production is derived from the chemical components of natural gas. (All nitrogen fertilizer is either deployed directly as anhydrous ammonia or is derived from it.) With energy prices, even where they stand today, it is uneconomic for U.S. producers to make anhydrous ammonia. Plus we would still be dependent on foreign sources for its production. Therefore, the new renewable energy production approaches noted above represent the only viable way forward to solve this crisis.

Specific Policy Recommendations for IMMEDIATE Action

In general, provide economic incentives, price supports, low or no interest loans, and grants, to accelerate the deployment of new production facilities and adjustments to infrastructure to achieve maximum new production in the shortest period of time.

First of a Kind Anhydrous Ammonia Production Facilities

Our free market system is the most powerful force ever invented to build new businesses. The market alone however does not solve the challenges of financing first of a kind commercial facilities from new companies. The investor perceived risks are generally greater than their ability to absorb in an investment. Hence, government support is necessary to bridge what is often call “the financing valley of death”. Once the first commercial scale facility is built and running, all of the risk is removed and the market, with all of its powerful benefits can step in and bring huge scale to new business opportunities. Therefore, the government only needs to play a relatively small, immediate but critically important role to get the solutions off the ground. These are the specific proposals for ways to bridge this gap:

  • Option 1 (Best): Provide all of the funds in the form of a grant to build the first commercial scale deployment of a new renewable approach to producing anhydrous ammonia.
  • Option 2: Provide the equity component of such a project and a loan guarantee that covers the period from initial construction through the life of the facility.
  • Option 3: Provide low or no interest loan from construction through the life of the facility.
Price Supports

The biggest hurdle to getting bank credit financing for commodity production projects is a fear that market prices may fluctuate below the level that allows one of these new methods of production to be profitable enough to be able to pay off the debt on a continual basis. One way to mitigate that risk for lenders is to provide a price floor, price subsidy or equivalent that guarantees that the anhydrous ammonia producer will at least make enough operating profit to pay the bank.

  • Option 1: Set a minimum market price for anhydrous ammonia that is sufficient to provide the economic umbrella for new methods of production to remain in business for the life of the facility. E.g. $400 per ton.
  • Option 2: Set a government subsidy that is tied to the specific economics of the technology that is being used to produce the ammonia. For example, if the marginal cost for produce one ton of product for technology A is $350, and that includes all operating costs, normal overheads and enough for debt service, and the market price were $325, the producer would receive a cash subsidy for that ton of $25.
Logistics Support

For biomass-based production methods for anhydrous ammonia, there is a need to efficiently collect biomass that is currently not being collected and distributed. For example, in corn farming country, the available biomass includes corn cobs, portions of the stalk (stover) and leaves. In order to efficiently collect these valuable waste products, farmers must either (1) buy new equipment, modify what they have or a least add on some new equipment. Supports and incentives to quickly create a new market in easily collectible (now waste) biomass needs to be enacted.

  • Provide low or no interest loans for new equipment purchases, modifications or add-ons that are used to efficiently harvest and collect biomass for use in renewable energy production.
  • Provide subsidies on a per ton collected and delivered basis to make it economically attractive to begin the collection and distribution of these new commodities. Set the price per ton at $80 per ton minimum. Farmers that choose this price support would not be allowed to charge any additional markup for the biomass other than actual delivery costs.
Investor Support

In order to kick start the deployment of these new production methods, investors should be provided significant tax incentives so as to drive capital to this new sector. Once the market has brought enough new production capacity to regain our food security independence this economic support can be phased out.

  • Provide Investment Tax Credits equal to 50% of the cash amount actually invested, recoupable in the same year the investment is made.
  • Make sure this credit is available to farmers who choose to invest in such facilities even if the funds they are using for the investment are borrowed.