This memo was initially disseminated in early April of this year when a bill to provide a tax incentive for the burning of poultry manure was debated in the Minnesota legislature. That bill was defeated, but recently a similar provision was included in the U.S. Senate tax bill(although not in the House tax bill) and by the time you read this will probably be included in the Congressionally approved final tax bill. The President has promised to veto the bill because of its budgetary implications so the debate over all of its provisions, including the Poultry Energy Power Act(PEEP may well continue into the fall.

This memo addresses the question of a tax credit for burning manure as it pertains to Minnesota, but we believe the analysis would serve to inform the debate at the national level as well.

Although the federal provision deals only with poultry manure, it revives a controversial debate from the late 1970s and early 1980s. At that time federal and state governments, faced with the problem of leaking landfills and rising oil prices, decided to enact significant subsidies for the construction of giant garbage incinerators. Some major environmental groups supported that strategy but most grassroots environmentalists opposed it. They argued that recycling was the better way to go, not only because it was cheaper but because it was more flexible and more environmentally benign. Not until the mid l980s did government undertake a serious analysis of the comparative cost of different solid waste disposal strategies.

By the late 1980s the recyclers had won the argument. Garbage incineration faded as a significant waste option.

We should learn from that experience. Unfortunately it appears likely that we are about to imitate that learning curve. The poultry manure law provides evidence of a renewed interest by the federal government in waste-to-energy plants. And this rush to judgment is occurring without any serious examination of disposal alternatives. Indeed, the primary sponsors of the federal and state tax incentives for burning manure have told us that they have undertaken no comparative analysis.

This memo, as noted above, except for minor changes, was written earlier this year to address a tax incentive introduced into the Minnesota legislature. We believe that its observations and framework might be useful for evaluating the federal tax incentives as well.

1. It is premature to anoint one specific technology as the solution to the poultry manure problem and offer it large public subsidies.

The response to the poultry manure pollution problem in Minnesota embodied in the two pending bills is reminiscent of Minnesota’s initial response to the discovery that our garbage dumps were leaking poisons into the ground water. At that time, in the late 1970s, the state legislature and regional governments rushed to embrace a specific technology--incineration--and enacted policies and laws that accelerated its use. By the mid 1980s Minnesota boasted the largest number of incinerators per capita of any state in the country. Later we discovered less expensive and more flexible ways to cope with the solid waste disposal problem and also discovered some environmental shortcomings of garbage incinerators themselves.

The poultry manure pollution problem is real, but the government and private sector response to that problem is very new and thus, private entrepreneurial responses to that problem are very recent.

The federal government recently announced guidelines related to manure from large confined animal operations. Several states have been developing standards related to the handling of animal manure. In reaction, the private sector is feverishly developing strategies and technologies to tackle the problem.

A burst of entrepreneurialism and innovation is sweeping the industry. It is premature for Minnesota to anoint a specific technology as the solution and award it large public subsidies.

Maryland may be furthest along in tackling the poultry manure problem because an outbreak of pfiesteria in 1997 concentrated public attention on the runoff issue. Maryland generates about 750,000 tons of poultry manure, mostly from chickens.

Last year Maryland enacted legislation that requires nutrient management plans by farmers(2002 implementation date for farmers using conventional fertilizers and 2004 for farmers using organic fertilizers). Earlier this year Maryland made integrators, that is, the poultry processors rather than the contract growers, responsible for manure disposal and will be requiring a waste disposal plan as part of their permitting process.

Knowing that there are many possible strategies for pollution abatement and in all probability, no one solution, Maryland has funded several pilot projects. One pays for the transport of manure from those parts of the state that have excess nutrients to those areas that need nutrients. Another adds phytase, an enzyme that helps make phosphorous more bioavailable to poultry, to the feed, with the expectation that it could reduce by 20-30 percent the amount of phosphorous in the manure. Finally, the state appropriated about $1 million to establish an Animal Waste Technology Research Fund. Periodically the Fund issues a request for proposal.

Brad Powers, co chairman of the Maryland Animal Waste Technology Work Group, helped evaluate l20 proposals this year on how to process poultry waste. They funded three companies. They did not fund the burning of manure. "Our group, generally speaking, does not believe that burning the manure is the best solution. We believe the organic matter is sufficiently valuable that it doesn't make sense to destroy it", Powers told the Washington Post.

Minnesota would do well to emulate and learn from Maryland’s comprehensive and cautious approach.

2. Several technologies are available for handling turkey manure. Some appear less expensive and more flexible than the Fibrowatt technology.

Fibrowatt, a subsidiary of the British holding company, Fibro Holdings, plans to burn about 500,000 tons of poultry litter in a 40 megawatt plant. The plant will generate electricity and an ash that will be sold as a fertilizer.

The plant will cost $70-120 million(based on figures reported in the Baltimore Sun, February 28, 1998). The direct subsidy from the taxpayers will be $4.5-5 million a year each year for ten years, for a total cost of $45-50 million. This comes to about $10 per ton of poultry litter handled.

The plant will generate electricity, according to Fibrowatt, at about 7.5 cents per kWh. If the state provides a 1.5 cent per kWh subsidy, the price will be reduced to 6.0 cents per kWh, still much higher than the current cost of electricity on the open market.

Alternative strategies exist.

AgriRecycle, a Missouri company, has developed a technology to pelletize poultry manure. The pellets are inexpensive to transport and require less land for application. Currently AgriRecycle has a small pelletizing operation in Arkansas and according to them are shipping as far as South Dakota and Colorado from Southwestern Missouri.

In March 1999 Perdue, the largest integrator in Maryland(Maryland is dealing with chickens--turkey manure is similar to chicken manure, although turkey manure contains more water, and reportedly has more essential nutrients than chicken manure) announced a joint venture with AgriRecycle to build a plant in Maryland. The $6 million plant will break ground in June 1999 without, at present, significant public subsidy, and will handle 120,000 tons.

Other companies are seeking to solve the poultry manure problem either by converting it into energy or through composting. One is a homegrown Minnesota corporation. The Sustane corporation was founded by Craig Holden, a member of the Holden Farms family. Recently Sustane became Natural Fertilizers of America. Sustane is still their brand name. NFA currently composts 20-25,000 tons of raw manure into 9-10,000 tons of finished product.

NFA sells to golf courses in Minnesota and around the world. Golf courses now use organic manure on greens and tees because golfers sometimes are on their hands and knees on greens and may lick the golf ball, and recently, have been suing golf courses. Thus for golf courses fertilizers have become a safety issue.

NFA is just one of what may be over 100 Minnesota manure applicators. These are small businesses could easily expand the number of facilities to handle a substantial portion of the turkey manure currently generated. Siting such facilities may be a challenge. However, a very large internal market for composted turkey manure could exist in Minnesota.

The Department of Transportation was using it back in the 1980s and then went to synthetics in 1990s and just returned to using organics. The DNR reportedly has a preference for using organics around lakes and streams on golf courses but it is just a preference.

Currently(March 1999) organic manure is about 10 percent higher in price than synthetic fertilizer. The current price of commercial fertilizer is about $350 a ton versus about $380-390 a ton for composted turkey manure.

Without a state subsidy, NFA, and other manure applicators(the Minnesota Solid Applicators Association has just formed and expects to have at least 50 members by the end of 1999), currently pays farmers $4-8, picked up from the grower. Even with the $10 per ton state subsidy, Fibrowatt reportedly plans to offer growers a lower price than NFA. AgriRecycle has not yet established a price, but company officials indicate that it will probably pay $8-10 per ton, delivered to their plant.

Conclusion

Minnesota should not embrace a single technology as the solution to the turkey manure problem. Several other technologies appear to be competitive with the burning of manure. Minnesota should not repeat the mistakes made when urban waste disposal became a public policy issue. We should emulate Maryland in its comprehensive and cautious approach to its poultry manure problem.