Minnesota farmers got some good news out of St.

Saturday, April 06, 2002

Minnesota farmers got some good news out of St. Paul recently with the passage of the biodiesel bill into law. Under the terms of the bill, most diesel fuel sold in the state must contain a 2 percent blend of biodiesel by 2005.

Biodiesel promises a number of benefits for Minnesota, including total economic benefits estimated at $212 million a year and the creation of more than 1,100 new jobs. Governor Jesse Ventura recognized these potential benefits, and in the end decided to let the biodiesel bill become law despite his general suspicion of government mandates.

Mandates aside, probably the biggest concern biodiesel opponents voiced was that a 2 percent mandate could mean higher prices for diesel fuel. But that hasn’t been the case from what we’ve seen so far with biodiesel blends. In fact, 2 percent biodiesel blends produced in other states and brought into Minnesota currently cost between zero cents and 3 cents more than regular diesel. That is less than the price swing we saw driving around St. Paul recently. In just a few blocks, we saw diesel range anywhere from $1.19 to $1.24 per gallon. That’s not a scientific poll, but it shows how widely consumer fuel prices can vary.

Biodiesel is becoming a buzzword across the country for a number of reasons. One reason is the U.S. Senate energy bill looks to kick-start production through a provision that would offer biodiesel producers a one-cent reduction in the diesel fuel excise tax for each percent of biodiesel used in their diesel blends. Also, federal air quality standards will ultimately steer the country toward cleaner-burning fuel mixtures such as biodiesel. I believe it’s wise for Minnesota to act now to take advantage of this special opportunity for market development. By acting swiftly, we give our biodiesel sector a head start over other states.

Our ethanol experience clearly demonstrates the benefits of leading the way in alternative energy. A decade ago, Minnesota lawmakers agreed to require ethanol-blended gasoline in the state. The idea was to boost corn prices by processing more of the crop in-state, and it worked. Today we have a thriving ethanol industry, and more than 17 percent of Minnesota’s corn crop is used for industrial processing – up from zero percent in 1986. More than $200 million in annual value is added to raw agricultural commodities. The plants also provide 750 jobs, with a total payroll of more than $25 million.

Like ethanol, biodiesel is seen as a way to improve crop prices by increasing in-state processing. Minnesota soybean prices are about 13 cents per bushel lower than the U.S. average. Compared to other top soybean states, our prices average 24 cents lower than Illinois, 19 cents lower than Ohio, 17 cents lower than Indiana, and 7 cents lower than Iowa. These lower prices are partly due to the fact that we don’t have the ability to process as much of our soybeans in-state. Instead, we ship them out as a low-value raw commodity. Only 40 percent of our soybean crop is processed in-state, compared to Illinois’ 72 percent and Iowa’s 54 percent.

Biodiesel will help boost our in-state processing, and that will add value to our soybeans locally. Soybeans are Minnesota’s top agricultural crop, contributing 17 percent of our total ag income, so anything we can do to add value to this major crop will have a sizable impact for the farm and rural economy as a whole.

Gene Hugoson is the Commissioner of the Minnesota Department of Agriculture.