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Congressional Testimony

Statement of Robert E. Armstrong
Former Executive Director
Alternative Agricultural Research and Commercialization Corporation

Bbefore the House Subcommittee on
Agriculture, Rural Development, Food and Drug Administration, and Related Agencies
March 17, 1999

Mr. Chairman and members of the Subcommittee. I am pleased to testify today on the President's Fiscal Year 2000 budget request of $10 million for the Alternative Agricultural Research and Commercialization Corporation (AARCC). It is a pleasure to provide you with an update on the Corporation's investment successes and the effect the AARC Corporation is having on the economy of rural America.

I would like to offer the subcommittee a short background on how we got to where we are today. Congress created the AARC Center in the Food, Agriculture, Conservation, and Trade Act of 1990, and reauthorized it in the Federal Agriculture Improvement and Reform Act of 1996 as a wholly-owned corporation of the Federal Government within the U.S. Department of Agriculture (USDA). AARCC's creation followed a 1987 report of the New Farm and Forest Products Task Force. The Task Force met for 2 1/2 years and recommended developing and commercializing a wide array of new farm and forest products using the excess production capacity of American agriculture as a way to revitalize ailing segments of rural America. The Chairman of AARCC's Board of Directors, Jeff Gain, served on that Task Force.

The idea of using agricultural materials as the raw materials for manufacturing and commercializing the things of everyday life is not new. In fact, the motto of USDA reads: Agriculture is the Foundation of Manufacture and Commerce. That was written in 1862. In more recent times, the Chemurgic Council advocated for agriculture to be the supplier of our raw materials. The Council was established in 1935 under the leadership of Wheeler McMillen, with financial support from Henry Ford. Other notables on the Council included Thomas Edison, Irene du Pont, MIT President Karl Compton, Nobel Laureate and physicist Robert Milliken, General Motors Vice President Charles Kettering, and Sears, Roebuck & Company Board Chairman Robert E. Wood. The USDA's four regional research laboratories grew out of this effort and were built in 1938-1941 for the express purpose of finding new uses for farm products.

Many historical examples exist of efforts to use agricultural materials for the manufacture of non-food and non-feed products. George Washington Carver devoted his life's work to this effort. Henry Ford even built a car body from vegetable plastic and plant fibers. Today we are beginning to see a move in Europe to a car that can be totally recycled. Across many industrial sectors we are seeing a move toward a bio-based economy. In fact, the head of a major oil company was recently quoted as saying that the world is entering "the last days of the Age of Oil."

The advantages of a bio-based economy are numerous, but three in particular are worth noting. First, such an economy uses agricultural materials that are domestically produced and annually renewable. I am certain the geopolitical and economic advantages of such a source of raw materials is not lost on the members of this Subcommittee. Second, unlike petroleum--our current main source of raw materials--it is not economical to ship bio-based raw materials long distances for processing and manufacturing. The processing and manufacturing must take place close to the source of the materials, and that means jobs in rural America. Finally, using bio-based materials means that at the end of a product's lifetime, it can be composted and used to grow the next year's supply of raw materials. Thus, an economy based on biology, instead of geology, takes full advantage of America's agricultural production capacity, provides jobs for rural America, and contributes to the well-being of the environment.

As you know, the AARC Corporation's mandate is to assist or invest in companies that are commercializing non-food/non-feed products , processes, or technologies that use raw materials derived from agriculture, forestry, or animal by-products. Through its investment activities, AARCC is a leading force in the effort to put America at the forefront of a global bio- based economy. Like any investment firm, AARCC measures its success through the success of the firms in which it has invested. AARCC also measures its success through the impact it has in rural America. Let's examine some of the factors AARCC uses to gauge its progress.

The return on investment (ROI) is a standard measure for any investment firm. In AARCC's case, it is of particular interest, because we have been entUtilities Programsted with the public's money. Typically, a venture capital firm focusing on the type of start-up and early-stage companies that AARCC does, would not anticipate repayments beginning until 6 or 7 years after an investment was made. In AARCC's case, our business plan projects a minimum of $100,000 and a maximum of $300,000 in repayment by this point in time. By the end of Fiscal Year 1998, AARCC had received $450,911.65 in repayments. AARCC is ahead of its ROI projections.

Another important measure is the amount of private capital that AARCC is able to attract into its client firms. The legislation requires fifty cents of private money to be matched against every dollar of AARCC investments. The actual ratio we see is approximately $3.50 of private money for every dollar of AARCC investments. Thus, since AARCC began its investment activities, we have attracted approximately $130 million from the private sector into rural America.

The expanded use of agricultural land is an additional factor that AARCC considers when making investments. Each year, about 10 percent of America's agricultural production capacity is fallow. AARCC is helping to put that land back into use. Since 1993, we estimate approximately 250,000 acres have been put back into production to grow the raw materials used by AARCC companies to manfacture their various products.

The most important measure of all is job creation in rural America. It is also the most difficult number to determine as it involves both direct jobs in the companies, as well as indirect jobs in the broader economy. Using various approaches to calculate the number, we estimate that AARCC has contributed--both directly and indirectly--to the creation of approximately 7,500 jobs in rural America.

Finally, I want to discuss AARCC's efforts with other Federal agencies to help the government realize the promise of Executive Order 13101, Greening Government Through Waste Prevention, Recycling, and Federal Acquisition. Working through USDA's Bio-based Products Coordinating Council and the Office of the Federal Environmental Executive, AARCC helped develop language for the Executive Order that encourages Federal purchasing agents to use set-asides and references to procure both recycled and bio-based products. Many of the bio- based products available to government purchasing agents today are made by AARCC-supported companies.

In conclusion, on behalf of the members of the Board of Directors of the AARC Corporation, I respectfully ask the Subcommittee to support the President's budget request of $10 million. With adequate appropriations, AARCC can continue its move towards privatization--as directed in the Federal Agriculture Improvement and Reform Act of 1996 --and be an engine for development in rural America.

Mr. Chairman, I would be pleased to answer any questions you or your colleagues may have about the AARC Corporation.

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