Prairie Prosperity
From biofuels to buffalo bullion & zamboni repair,
Minnesota town cooperates to boost rural business
By Stephen Thompson,
Assistant Editor
community in southeastern
Minnesota illustrates
the principles of cooperation
to promote economic
growth and prosperity in
the face of local economic setbacks.
Community members of the town of
Albert Lea have found that working
together, pooling resources and exploiting
every opportunity are the keys to
encouraging new growth. Since losing
500 jobs in 2001 when a processing
plant operated by Farmland Foods
burned down, Albert Lea and the surrounding
Freeborn County (with a population
of about 33,000) have found new
sources of income and expect to add 500
new jobs in the next 18 months.
The local electric distribution co-op,
Freeborn-Mower Cooperative
Services, is part of this community
effort, and uses its resources to bring
new business to the area.
“Our membership isn’t growing in
numbers very much,” says Tim
Thompson, president and CEO of the
co-op. “Our growth strategy is working
for economic development and
improving the overall quality of life
here.” As well as providing businesses
with competitive rate packages and
help in minimizing power usage, the
co-op offers financing using two funding
sources: USDA Rural Development
Rural Economic Development
grants and loans; and a program of
DairyLand Power Cooperative (Dairy-Land), a power-generation co-op that
provides electricity to Freeborn-Mower.
Ethanol, biodiesel plants
boost rural community
Just outside the city stands one of
the showpieces of Albert Lea’s economic
growth effort. The profitable
Exol corn ethanol plant is 100-percent
farmer-owned through a new-generation
cooperative, Agra Resources. It
shares a site with a new soy biodiesel
plant run by SoyMor, another cooperative
that shares many of its members
with the ethanol co-op. By sharing the
site, both businesses save on infrastructure
costs, including utility hook-ups.
Exol began operation in 1999 with a
13-million-gallon-per-year nominal
capacity. An expansion in 2002 tripled
capacity to 36 million gallons. The
plant is run and its products marketed
through a contract with Broin
Companies, an investor-owned consortium
that offers design and construction
of ethanol plants as well as marketing
and management services. Broin
currently works with 15 Midwestern
ethanol plants, and markets Dakota
Gold distillers grains — the byproduct
of ethanol production used as animal
feed — as a premium product.
The facility is now being upgraded
once again, this time to install Broin’s
new proprietary “fractionating” technology
that removes part of the corn
kernel before fermentation. The result,
claims Exol general manager Rick
Mummert, is higher-quality distillers
grains.
Freeborn-Mower and Dairyland
Power played a major role
in getting the Exol project
going. Dairyland saw an
opportunity to add a substantial,
steady load to its
system, thus improving
efficiency in off-peak hours
and lowering costs, says its
chief financial officer,
Robert Mueller. But even
more important, the operation
had the potential to
benefit the entire area.
“What sold it to us was
that it was all farmer-owned,”
says Mueller.
“This wasn’t an outside
group of investors that
would take their profits
away. It was members of
the rural community — and the community
would reap the rewards of the
risk they took.”
Freeborn County provided crucial
financial and technical support for the
development of the infrastructure
required for the biofuels plants. This
support included a $4 million, low-interest
loan “that helped get the ball
rolling,” said Susan Miller, county
engineer. It also provided a $75,000,
low-interest loan to develop a railroad
spur to serve the plants.
Another $2 million in county and
state funds were used to build access
roads from the plants to Interstate 35
and U.S. 65 that can support 10 tons of
weight from corn and soybean trucks.
The county provided a $200,000, low-interest
loan and did the design and
construction on sanitary sewer lines
that carry waste from the plants to
Albert Lea’s water treatment plant.
Electric co-ops kick start
stalled project
When the electric cooperatives first
got involved, the Exol project was at a
standstill. An overly ambitious business
plan had scared away potential sources
of financing. Dairyland and Freeborn
Mower kick started the project by paying
for a study by a reputable consulting
firm.
The study found that starting operations
with a smaller plant with the
capability to upgrade later offered a
better solution. It also recommended
Broin over the original plan’s engineering
and construction contractor.
Dairyland donated the use of its own
airplane to fly ethanol co-op board
members to inspect Broin’s plants, and
even provided a 3-year repayment
guarantee to the small local bank issuing
the construction loan.
Freeborn Mower took some risks as
well. The site chosen for the ethanol
plant was originally part
of the local investor-owned
electric company’s
service area. The
electricity distribution
co-op offered to swap
accounts, handing over
the contract for Albert
Lea’s sewage treatment
plant — an established,
blue-chip customer —
in exchange for the
right to provide service
for a start-up operation.
In addition, the co-op
had to build a new
power substation just to
serve the new plant, the
cost of which it would
have to write off if the
ethanol plant failed.
Dairyland helped out by agreeing to
shoulder half of the loss if the substation
had to be abandoned, and by giving
Freeborn Mower a 10-year guaranteed
rate plan for the power the
ethanol plant would consume. Under
the plan, the distribution co-op pays
the same discounted rate for 5 years,
after which the rate increases by 2 percent
each year for another 5 years. The
power co-op also agreed to pick up
two-thirds of any of the distribution
co-op’s unpaid accounts receivable for
the ethanol plant.
USDA funds biofuel plants
Freeborn Mower made its own
contribution to the plant’s construction
to the tune of a
$400,000 no-interest, 10-year
loan. The loan was made possible
by a Rural Economic Development
Grant (REDG) from USDA
Rural Development. REDGs are
given to rural electric and telephone
utilities to promote economic
development and job creation
in their service areas.
Another organization that
helped the ethanol co-op get on
its feet was the Albert Lea
Chamber of Commerce, which
donated free office space and
facilities for meetings while the
cooperative was being put
together. “We don’t have
that many resources,”
says Susie Petersen, the
chamber’s executive
director, “But we use
what we have to help new
enterprises, including
promoting local support
and providing publicity.”
Exol is now a member
of the Chamber, as is
SoyMor, the cooperative
running the biodiesel
plant on the same site.
Like Exol, the SoyMor
facility is fully farmer-owned,
with 500 members
— half of whom live
in nearby Iowa — and a
total investment of $110
million. Also like Exol, its
operations and marketing
are managed by a contractor — in this
case West Central Soy, another co-op.
The plant — currently the largest in
North America — began full production
at an annual rate of 30 million
gallons earlier this year. Like the Exol
plant, SoyMor received a $400,000
REDG loan through Freeborn Mower.
Tim Thompson points out that earlier
loans made from the REDG fund are
now being paid back, allowing the
electric co-op to loan the money again
to promising business ventures.
With the two operations next to
each other, and with similar capacities,
the contrast between the two is striking.
The ethanol facility dwarfs the
biodiesel plant. This is, in part,
because the ethanol plant has large
storage bins for the corn used as raw
material, while the soy operation currently
has its beans crushed elsewhere
and the oil delivered. However, even
leaving out the bins, ethanol production
requires a much more massive
structure, and the facility is far more
complicated.
Biodiesel potential
could loom larger than
ethanol
SoyMor’s first venture
was a plant completed
last year that
manufactures lecithin, a
valuable soy extract
used in foods, cosmetics,
pharmaceuticals
and other products.
Lecithin production for
pharmaceutical use
promises good returns,
says board member
Gary Pestorious, a
founding member of
both the Exol and
SoyMor co-ops. The operation uses
advanced technology to produce the
highest quality product, he says, without
unwanted chemicals such as hexane
that contaminate lower grades of
lecithin. This enables the co-op to sell
its product at a premium. Nevertheless,
he thinks biodiesel is already beginning
to come into its own, especially with
petroleum prices climbing.
“I now believe that there is more
demand than supply,” he says. “People
want this fuel. They want it bad.”
Pestorious thinks biodiesel production
could be profitable even without government
incentives, and that demand
for the fuel will eventually outstrip that
for ethanol. The reasons include not
only rising petroleum prices, but also
SoyMor biodiesel’s high quality, which
results in better mileage and less
engine maintenance. “Our product is
the best there is,” he declares.
Pestorious illustrates his point with
an anecdote. One company bought
200,000 gallons of SoyMor’s biodiesel
the first year, he says, and came back
asking for 3 million gallons the next.
“That’s how it’s going to go.” He’s
similarly optimistic about ethanol, and
believes that its production could eventually
use 15 percent of the nation’s
annual corn crop.
Sharing the site with the Exol plant
brings many advantages, including
cost-sharing for a rail loop facility that
will be able to handle 280 railroad cars
when finished. Another is a ready supply
of a vital production factor.
Biodiesel is produced from natural oils
and fats using a chemical reaction
involving alcohol.
Most manufacturers use methanol,
also known as wood alcohol, for this
purpose. But the SoyMor plant uses
ethanol supplied by its sister co-op.
Business incubator aids start-ups
Meanwhile, across town a business
incubator is helping some much smaller
ventures get started. The Albert Lea
Business Development Center is run
by the Albert Lea Economic
Development Agency. Built with the
help of another REDG loan from
Freeborn Mower, it offers support to
start-up businesses that would other-wise have trouble getting off the
ground. The Center provides space in
a modern business building suitable for
warehouses, small manufacturing operations,
food preparation and storage,
and offices. Reception and other business
services are included, as well as
legal, accounting, marketing, and business
planning assistance.
To qualify to use the incubator,
businesses must submit a valid
business plan and other information
supporting the viability of
the proposed enterprise. There is
an informal time limit of 5 years
for use of the facility, says Ryan
Nolander, the agency’s business
development director, but the
length can sometimes be extended,
depending on the circumstance.
He points out that, while
the businesses nurtured by the
incubator are small, it is small
businesses as a group that provide
the biggest single and fastest-growing
source of jobs in the
United States.
The Center currently houses
six budding enterprises. One is
Daisy Blue Naturals, a manufacturer
of all-natural lotions, soaps,
shampoos and other cosmetic
products. The business began in
chemist Jena Thompson’s home,
when her young son was found to
be allergic to the ingredients of
commonly available baby oils and
soaps. Thompson tried to find
natural-based products, she said, but
“according to federal government
guidelines, only a portion of a product
needs to be natural in order for it to be
labeled as such. And everything truly
natural was outrageously expensive.”
So, she formulated her own soap and
baby oil.
Soon, Thompson’s neighbors were
buying her formulations, and her business
grew using direct sales through
house parties. In July 2002, the business
moved into a space in the incubator
facility, and has expanded into larger
spaces there three times since. All of
Daisy Blue’s products are manufactured
on the site, using only natural
ingredients.
The company now employs 13 people,
including Galen Spinler, its chief
chemist. Spinler used to work in the
defense industry, but far prefers his
current job, saying, “It’s a great bunch
of people to work with.”
From wheelchair cushions
to dried buffalo bullion
The business incubator also houses
six other enterprises, including a firm
that makes wheelchair cushions, a
company that manufactures a dried
bouillon mix made from buffalo
instead of beef, an electrical wholesaler,
a caterer and a company that services
ice resurfacing machines used on
skating rinks.
Nancy Jensen runs one of the smaller
operations, Day Lily Enterprise Inc.,
a shop that makes custom-printed day
planners. Jensen ran her business out
of her home for five years, until she
was given the opportunity to rent the
incubator space.
“I quit my job and stepped out on
faith,” she says. With only one
employee, the business is still small,
but growing, says Jensen, who is grateful
for the chance to get her dream off
the ground. She says the Development
Center gives her enterprise an ideal
venue for getting started. “I love
it here,” she says.
The agency offers help to
other businesses as well, including
aid in locating financing and suitable
properties, and a revolving
loan fund that offers up to
$50,000 to small businesses for
acquisition of equipment. It also
operates the Albert Lea Small
Business Development Center, a
joint effort by the Minnesota state
government, a local technical college,
and the Small Business
Administration that offers help in
evaluating profitability, marketing,
planning, loan application packaging,
and related services.
The economic development
community in Albert Lea isn’t
looking back. Currently on the
agenda is setting up a venture
capital fund to bring potentially
high-income new ventures to the
area. Representatives of the
Chamber of Commerce, the
Albert Lea Development Agency,
Freeborn Mower and other organizations
are currently exploring
ways to find funding for such an
initiative.
On Sept. 27, they met in a conference
room at the Freeborn Mower
offices with USDA Rural Development
State Director Steve Wenzel to discuss
the venture capital fund and other
development issues. Wenzel says he’s
encouraged by the initiative shown by
the group. “I think cooperation and
coalition among government and nongovernment
entities is the key to job
development in rural areas,” says
Wenzel. “USDA takes a very active
role, but it’s the inventiveness and
resourcefulness of members of the
community that’s going to make the
difference.”
