Bill Levy founded Pacific Ag, a Hermiston-based crop residue business, 17 years ago. The company operates in seven regions around the country and employs 250 people, including 100 in Hermiston. Revenues have doubled in the past five years, and in July the company announced a $7 million investment from Advantage Capital Agribusiness Partners, a partnership between Advantage Capital and the Farm Credit System, a network of nine lending organizations.
In these edited excerpts, Levy discusses new residue markets, the company’s growth strategy and why a biofuel plant is like a large cow.
Pacific Ag is a biomass supply chain management provider. In plain English, what does that mean?
It’s a lot like the scrap-metal business. When farmers harvest wheat or corn, they have leftover crop residue on the field. In many instances, that residue is too much; they don’t need that material for their soil sustainability. Our business is coming in and harvesting that residue off growers’ fields and then finding end-use markets, whether it’s international and domestic feed markets, erosion control or mushroom composting.
So you’re in the recycling business.
We’re taking something that is of no value and taking it into a different form that has value. The farmer harvests the grain crops, and we harvest the stock and the leaves that are leftover. There is a segment of that crop that needs to be returned to the soil, but through a lot of research and history, we are removing the residue at a sustainable level.
Who are your customers?
The grower is our first customer; they have to be happy with removal. We own and operate all of our own machinery; it’s not subcontracted work. We want to control the grower experience. We want them to be happy with removal of residue. It needs to be done at the right time and at sustainable levels. When you take care of a grower, you have access to the land for a long time. You have a customer for life.
Who buys the crop residue?
The end-user markets are exciting and much broader than you can imagine. This is an industry that is not on the radar, not like high tech: apps, social networking. But this is a fascinating industry. You have domestic and international feed, dairy or beef cows, either here or internationally, so there is a demand for roughage. In the Middle East and China, you have a growing middle class eating more high-value proteins, growing the demand for that market.
What are your growth markets?
The blankets and waddle tubes filled with straw crop residue; that is a very exciting business that is growing for us; the tubes are used in construction zones to prevent erosion. Mushrooms are grown on a bed of composted residue. That’s a big industry for us as well.
Now biofuels are part of your story.
A biofuels plant is like a large cow. A cow digests residue to access the sugars, and in the case of cow, you are creating milk and meat. In a biofuels plant similar enzymatic process occurs to break down sugars and separate sugar from cellulosic material. Then you ferment those sugars into alcohol. Once you have alcohol, you have a lot of different derivatives. It’s not just about transportation fuels but also green consumer products and plastic replacements. So we’re no longer relying on foreign oil. Dasani’s water bottle today is made from 30% plant product. Procter & Gamble, Coca-Cola — many companies are looking for this renewable stream of alcohols and sugars. Bioproducts has gone from zero to 50% of our business by volume in the last four years.
There has been a lot of hype around cellulosic biofuels, but not a lot of forward movement.
There are now three plants going through commission to produce fuel. These plants are being built by companies like Dupont, which tells you the technology has made it to a level where boards and management teams feel comfortable building and investing a couple hundred million dollars in the plant. This was a really obvious market for us to expand into because they need residue just like a dairy needs residue.
How is the drought affecting business?
We either bypass entire fields and farms or don’t harvest. It is very rare we have drought in every spot. On the eastern side of the state, we’re farming with irrigation. The Midwest is very inconsistent. In Kansas, for three years, we had no more than 12 inches of precipitation. This year they’ve already had 30 inches of water. We don’t see that kind of variability here.
How did you get started?
The company was founded when I was in college, by myself and a friend 17 years ago. It was a good summer business that gave us a way to have some beer money and some independence. I never imagined how it would grow. We worked hard. We were also in the right place at the right time. Seventeen years ago, there wasn’t the demand for this residue that you see today.
What is your biggest challenge?
|Low natural gas and oil prices have created a challenging environment for the cellulosic biofuels industry. But as Levy notes, three commercial-scale plants are now under commission, a sign of growing industry confidence. Dupont built a $225 million plant in Nevada, Iowa. Abengoa opened a plant in Hugoton, Kansas last year, and Royal DSM of the Netherlands, in partnership with POET-DSM Advanced Biofuels, has opened a facility in Emmetsburg, Iowa. Closer to home, officials at ZeaChem, which operates a demonstration biorefinery in Boardman, did not return repeated phone calls. The company is headquartered in Colorado.|
Building the systems, hiring the right people and just making sure you scale the proper way and with the right kind of capital. We are building a national footprint, and we’ve opened up a new location or two every year. North Carolina was new last year. North Dakota is new this year. You want to make sure the culture is right and the systems are in place.
Now investor funding is part of that strategy.
We have been self-funded for 17 years. But in the last three years, our growth has been exponential, and we’ve also seen a lot of opportunity on the technology side as well as acquisition. This led us to believe we needed capital. We are generally debt averse and we wanted an equity partner. Advantage Capital has been just great. They got our value proposition and business model. They understood the opportunity.
You made three acquisitions in the past year. Are more on the horizon?
We acquired smaller companies that are similar to Pacific Ag. They are the first of a series of acquisitions. It’s in response to the market. This is offense; we see opportunity. We know where we want to be strategically and geographically.
How do you get young people interested in agriculture?
There have been fancier industries, seemingly more exciting. But as the world turns toward renewable products and fuels, agriculture will be the benefactor of that. We’re in an exciting time for Oregon agriculture.