Agriculture Committee on April 19th, 2007

[Roy Eyjolfson, Project Manager, Bifrost Bio-Blends]

Good morning.

My name is Roy Eyjolfson and I'm speaking to you on behalf of Bifrost Bio-Blends from Arborg, Manitoba. I'm accompanied here by the president of our company, Mr. Denis Kaprawy. My role at Bifrost Bio-Blends is project manager, and we are currently in the middle of trying to get our venture off the ground. It has been a year of trials and tribulations, combined with a lot of frustration. This will be dealt with later in my comments.

It's my understanding that your mandate is to study the agricultural policy framework. It's a mammoth task and one I don't envy you in dealing with. Hopefully, the comments made here, in the context of our small operation located in small-town Manitoba, will be of interest to you.

To put a framework around the next ten minutes, I will speak to four areas: first, basically who we are; second, what we're trying to accomplish; third, why we're committed to the success of our venture; and fourth, hurdles and challenges we have encountered, from which you can draw your own conclusions.

First, who is Bifrost Bio-Blends? Bifrost Bio-Blends Ltd. is a group of 25 investors who came together last year with a vision of forming a company to produce biodiesel. Fourteen members of the investor group are local area farmers, all having canola as their crop mix. They view the biodiesel venture as an opportunity to provide an alternative delivery point for their crop. There's a lot of interest in the value-added component of the business. This is a real example of producers converting something they grow on the farm to something of tangible value that can be used in their operation. In the case of the canola producer, it is either a form of energy for their own use or a product that has economic value within their region. The product is green, it's carbon neutral, and it has a positive impact on the environment.

The remaining members of the investor group are primarily businessmen from the Interlake area. One member of the shareholder group is Mr. Paul Bobbee. It can be safely stated that Paul was instrumental in generating the initial interest in producing biodiesel in Arborg. He fabricated a pilot plant on his farm and produced biodiesel that met ASTM standards. For safety reasons related to the handling of methanol, only one batch was produced; however, this was sufficient to demonstrate that the concept was not only sound, but economically feasible. He is contacted on a regular basis for advice from people across Canada who need information about biodiesel and he is a source of inspiration in our group.

Secondly, what are we trying to accomplish? The purpose behind our venture is to manufacture biodiesel and market it successfully. Again, the value-added aspect is very attractive to the farmers in the area, who view it as one of the few opportunities to see their efforts as producers come closer to a marketable commodity made right in their own backyard.

The source of oil for the trans-esterification process will be locally grown canola, a large part of which will likely be delivered to the plant by investors in the company. It is estimated that approximately 50% of the canola grown in the surrounding area will be needed for the plant when it reaches full operational capacity. Crushing of the oilseed will be incorporated into the facility and the resulting meal sold into the local feed market. The biodiesel produced will be marketed into the local agricultural community, into the transportation sector and its industry. “Local” in this context is our region.

The operations will start out with a projected annual production of between 3.5 million litres and 5 million litres. Our plan is to increase output to 15 million litres within two years. The decision to begin with low annual capacity was dictated by financial constraints. We are, however, viewing the requirement to start at a reduced output in a positive light. Growth will occur as markets develop and as the public becomes more and more aware of the broad spectrum of benefits that biodiesel brings to the table. People are well aware of ethanol as an alternative form of energy, and biodiesel is only now coming forward as another form of energy. It too is a green form of renewable fuel.

[The Chair, Conservative, James Bezan]

Mr. Eyjolfson, you're speaking just a bit too fast for the translators.

[Roy Eyjolfson]

Oh, I'm sorry.

Third, why are we committed to success? Success can be defined in many ways. I feel that in the eyes of the local producers, taking the risk by being directly involved in a venture that makes a positive contribution to the area in the form of employment, taxes, community diversity, and related business activities is a success unto itself. Add to this the value-added component I addressed above, and that makes it more successful in their eyes.

When we take the current environmental concerns around greenhouse gases and global warming and the known negative effects of using fossil fuels into consideration, there is a strong desire to be involved in a project such as this. These are all factors that make us want to succeed.

At the risk of repeating myself, I think it's appropriate to reinforce the fact that this undertaking exemplifies the concept of value added.

The rural municipality of Bifrost and the town of Arborg are small communities in Manitoba. They're at the northern fringe of agriculture in central Manitoba in a region that is confined by two large bodies of water: Lake Winnipeg to the east and Lake Manitoba to the west. They are communities isolated from large centres, and therefore isolated from where the agricultural products of their farms are processed into what the consumer sees. So it can be safely stated that when a rare opportunity like producing biodiesel materializes, the community will embrace it.

This is indeed what has happened here. We have found a business that has a design capacity that ties directly into the feedstock availability of the immediate area and in turn produces a fuel that powers most types of agricultural equipment. It is a full-circle opportunity for the farming community, not only in Manitoba but in rural Canada.

Fourth is hurdles and challenges we have encountered. This statement is a bit misleading, in that it implies the past tense. We are still encountering hurdles and challenges.

The largest hurdle we are experiencing is financing. As mentioned earlier in this presentation, Bifrost Bio-Blends will be starting out small and will grow as the biodiesel market develops. This decision was made as the result of reluctance on the part of the financial community to underwrite a biodiesel venture. Our project was not the only one delayed and essentially hobbled because of this refusal to loan funds.

It is a new industry in Canada—not new around the world, but still new to Canada. Essentially, the success of such a venture is difficult to substantiate because it is so new to the financial arena. The reluctance is understandable but nonetheless difficult to accept.

It is at times like this that government has to be involved, government has to take a lead, government has to react quickly, especially when the government has made a commitment to greenhouse gas reduction. Our experience has not been with Agriculture Canada but with Natural Resources Canada because of the environmental connection. However, small-scale biodiesel ventures like ours also fall under agriculture. They likely fall under government umbrellas as well; Industry Canada is one that comes to mind.

While the federal government's intentions have been good, government has been slow to react to the needs of business development. I've mentioned that our biggest hurdle has been financing, and for expediency I will just list the other issues we face and suggest where government might play a supporting role.

We need some form of made-in-Canada protection for small agri-based industry. It's difficult to compete with the Archer Daniels Midlands of the world. It is discouraging to see Canadian canola leave Canada and come back as biodiesel. This is starting to happen and is happening at the expense of Canadians—and more specifically, of rural Canadians.

The discrepancy between the incentive programs in Canada and the U.S. is huge. As we speak, biodiesel plants are operating all over the U.S. Midwest, while Canadian ones remain on the drawing board. We have to react faster, and unfortunately, we need government assistance to do so.

Waiting until 2012 is waiting too long for a 2% biodiesel mandate. With the right support from government, we think this goal could be met sooner. To encourage the use of biodiesel in the agricultural sector, the elimination of the 4% federal tax on renewable fuels would be beneficial.

Product distribution and integration into the existing commercial fuel supply are going to be issues. The petroleum industry is viewing renewable fuels as direct competition to its industry. To overcome this, government policy has to come into play, especially for a government that is supportive of greenhouse gas reduction. Education programs promoting the benefits of biodiesel to the general public are needed.

Support from government by using renewable fuels in federal fleets would go a long way to developing a market. While we think we understand the constraints in which government must operate, we likely do not realize the full extent of these, so no comments will be made in this regard at this time.

As a last statement, I would strongly suggest that how policy is initiated and administered must be re-examined to facilitate a faster response to the needs of rural initiatives. We feel one response is to be informed and therefore aware of the programs already in place. We can't blame government for that. It is largely our own responsibility to seek them out. But there must be a better way of ensuring that qualifying parties are informed. In our case, the ACAAF program comes to mind—MCAP, I believe it's called, in Manitoba.

In closing, I would like to state the obvious about our project. It has terrific environmental benefits, in that it will produce a product that is both renewable and green. With the focus on the global impact of fossil fuels, locally grown canola provides a feedstock to produce an attractive alternative. The process of making biodiesel is, in itself, green. The process does not pollute the environment. Air and water emissions don't exist and the small quantity of solids generated is totally biodegradable and will be used as a fertilizer.

Opportunities such as the one we're seeing in biodiesel don't happen often. The time we have to react is short. Endorsing and encouraging small-scale agri-based industry in rural Canada will have a positive impact on the local economy through employment and the related spinoffs that a viable business has in the community. We need policies in place to provide timely support to opportunities when they present themselves.

On behalf of our group, I would like to thank you for this opportunity to express our thoughts.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Eyjolfson.

Mr. Hubbard, the floor is yours.

[Charles Hubbard, Liberal, Miramichi, NB]

Thank you, Mr. Chair. We've heard a lot of very interesting presentations.

I want to start with biofuel. I don't want to embarrass anybody if it's not public information, but could you just give us, as a committee, an indication of what type of capital you're trying to put together to create your business in this area?

[Roy Eyjolfson]

As I mentioned, we wanted to start at something that is viable, and that is in the 15 million litre per year range. To do that, our budget was about $1.7 million.

[Charles Hubbard, Liberal, Miramichi, NB]

So you're looking for less than $2 million?

[Roy Eyjolfson]

Yes.

[Charles Hubbard, Liberal, Miramichi, NB]

I find that incredible.

[Roy Eyjolfson]

So do we.

[Charles Hubbard, Liberal, Miramichi, NB]

Do you have trouble raising that much money in Manitoba?

[Roy Eyjolfson]

The way we structured it is that the 25 shareholders contributed about 25% of that—

[Charles Hubbard, Liberal, Miramichi, NB]

So in terms of programs, you have western diversification money, you have the province, and you have the feds. You probably could go to the Farm Credit Corportation. You mean all that—? I thought you would be talking probably in the $15 million to $25 million range. It's a shame to think that for such a small amount of money and such a good idea you seem to be stymied. It's regrettable.

I want to move on to the idea of insurance. When we talk about the different programs, if I remember correctly, the concept of NISA originally came out of what you were doing in Manitoba many years ago. You look upon insurance as the first line of enabling people to get fair value for their work in agriculture, that a farmer could rely on insurance first before getting into other governmental programs. That's a new concept. In terms of having difficulty with cashflow, how responsive would insurance programs be to the needs of farmers who find they're in difficulty with their operations and with selling their product?

[The Chair, Conservative, James Bezan]

Mr. Hamilton.

[Neil Hamilton]

By way of a very brief background, when the APF was first developed, I believe the original concept was that CAIS could replace insurance. All we needed was a CAIS program, which was an all-encompassing program. I think the last few years have proven that other things are necessary as well.

But specifically on your question of cashflow, in the case of production insurance for crops, the majority of our claims are paid within six weeks of a farmer filing a claim. They're generally paid in the fall of the year. In my mind, the benefit is that the farmer knows upfront what his insurance coverage is. That's his guarantee for the year, and if he falls short of that amount he'll be brought up to that level. The money does flow very quickly. In addition to that timeframe of six weeks to two months, we also provide an advance to the farmer when we have more claims than we can handle on a timely basis in a difficult year. There is a set provision to get that money out quickly.

[Charles Hubbard, Liberal, Miramichi, NB]

With the insurance concept, how far could you carry that?

Mr. Easter will probably give figures later about net farm income being terrible for so long that without our government payments and so forth the whole program probably would fall apart.

Could insurance cover long-term lack of net income to our agricultural communities, or is it simply an add-on to some of the other programs that we are trying to provide provincially and federally?

[Neil Hamilton]

Well, it's my opinion that insurance can be developed for income-based product. Formerly, we had a gross-revenue insurance program for grains and oilseeds, which was an insurance-based program. So it is possible to develop insurance for income loss; it doesn't need to be limited to production loss.

It is quite a bit more difficult to do that, because when you bring in that price aspect and the price-yield correlation, it gets confusing. But in my view it is possible to do it.

[Charles Hubbard, Liberal, Miramichi, NB]

With the hogs now, we hear—

[The Chair, Conservative, James Bezan]

A very short one.

[Charles Hubbard, Liberal, Miramichi, NB]

Probably it should be short with hogs, but in any case, we hear problems about plants closing, people having to transport their livestock now to other regions for processing.

Here in Manitoba, I understand you have the capacity, and there are enough kill areas to look—

No? What are you encountering here?

[Andrew Dickson]

The situation in Manitoba is essentially that one large processing company is, shall we say, consolidating its operations.They're expanding their new plant in Brandon, and the intent is to get to a double shift so they can process 4.5 million, 5 million pigs a year. They're closing operations in places like Saskatchewan, and Saskatchewan will be in the situation where they'll have no federally inspected plants. Those pigs will have to leave that province and go elsewhere.

Currently we ship 1.3 million pigs into the United States to a processing plant there, because of competitive price reasons. We have producers who don't want, necessarily, to accept the Maple Leaf price; they want to get another price. So we're in the process of trying to attract another processor to set up a plant in Winnipeg, and that company is still working away at this thing. We're going through an environmental hearing process, and there's a new business plan being put together to get that plant up and running. It will probably process two million pigs or something like that.

Our other issue is that we have shipped four million wealings into the United States to go to feeding operations in Iowa and Minnesota. In Iowa last year they built 290 finishing barns, and we've built 10 here in Manitoba. So we want to get into more finishing at some point or other in the province, depending on price, but more importantly, depending on availability of grains at a reasonable price so that we can make sure the grain farmer makes some money at this thing and our hog producers can make money.

The big thing is transportation costs, and that's what we're trying to work away at. These COOL regulations that are coming pose another threat to us as well, so we want to have more of a made-in-Canada, made-in-Manitoba solution to our issues here.

[Charles Hubbard, Liberal, Miramichi, NB]

Thank you.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Hubbard.

Monsieur Gaudet, you have five minutes.

[Roger Gaudet, Bloc, Montcalm, QC]

Thank you, Mr. Chair.

My question is addressed to the representative of Bifrost Bio-Blends. Do you have the support of agricultural producers not only for your new experiment, but also for you new development?

[Roy Eyjolfson]

Among the local community, we definitely do. Of the investors in the group so far, over half of them are producers, and all of them produce canola as part of their mix of crops. From the feedback we're getting from other producers in the area, I'd say there's definitely an interest.