By Billy Barnes, MBA ’23
This article was written in response to a seminar given by Bill Caesar, President of Generate Upcycle and Dan Meccariello, Director of Operations at Generate Capital, in an EDGE Seminar at Duke University’s Fuqua School of Business in Spring 2023. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speakers.
It was interesting to learn, in our recent EDGE Seminar class, about Generate Upcycle’s investments in biogas. Generate Upcycle and other prominent players in this space, such as Nature Energy, see opportunities in developing biogas facilities in markets near large population centers, landfills with high tip fees, and businesses or communities willing to pay a premium for organic waste disposal. As these firms focus on capturing biogas market share in these markets, I believe there is an opportunity for agriculture co-ops in the Midwestern U.S. to take advantage of the current market conditions to become market leaders in the Midwest. This would benefit the co-ops, farmers, and the environment.
Three factors make Midwestern co-ops well positioned to become leaders in the biogas space: location, rising corporate interest in supply chain emissions reductions, and the unique co-op business model.
Location. Midwestern co-ops have a location advantage in biogas production–most notably, their proximity to swine and dairy farms. Excluding North Carolina, the states with the highest swine populations in the United States are all located in the Midwest (Iowa, Minnesota, Illinois, Indiana, Missouri, Nebraska).[i] Three of the top eight states with the largest dairy cow populations are also located in the Midwest (Wisconsin, Minnesota, Michigan).[ii] Being located in agriculture communities with high populations of swine and dairy cows is advantageous to co-ops entering the biogas space because it ensures that they will have easy access to manure as an input in biogas production. Additionally, on average, tip fees per ton of garbage in the Midwest are below the national average tip fees per ton of garbage ($50.93 vs $54.03 in 2021; $47.85 vs $53.72 in 2020).[iii] The low tip fees in the region provide an advantage to co-ops because the low fees may deter larger competitors from entering the region as the biogas industry develops. Midwestern co-ops receive an additional layer of competitive protection from their geographic location because larger competitors may be hesitant to enter regions with low populations densities in the near term.[iv]
Corporate interest in reducing supply chain emissions. As many companies are looking to reduce their carbon footprints, companies are increasingly paying greater attention to their Scope 3 emissions. In many industries, such as the food industry, this means that companies are looking at their supply chains down to the farm level to determine what emissions are being generated.[v] Common manure disposal practices currently used on swine and dairy farms include deep pit storage, flush collection, and scrape collection. These practices are not sustainable and are susceptible to generating large amounts of methane emissions.[vi] As companies look to reduce supply chain emissions, farmers may have to change how they dispose of animal waste. In this case, co-ops could act as a certifying body by having anaerobic digestion systems that farmers can use to dispose of animal waste and certify that the farmer is using sustainable agriculture practices.
Co-op business model. The standard business model of an agricultural co-op is that it is owned by a collection of farmers in a community (“members”). A co-op’s mission is to help its members “market and process their crops and livestock, and secure needed production supplies and services” (USDA, Co-ops: A Key Part of Rural America). At the end of the fiscal year, a co-op returns a portion of its earnings to each member relative to the amount a member spent the previous year.[vii] Given this business model, co-ops operating anaerobic digestion systems that create biogas are a natural service offering extension. Farmers already generate animal waste and crop byproducts that need to be disposed of, and many farmers already use co-ops for agriculture products and services. This familiarity limits the hurdle of introducing farmers to a new entity they would have to work with. Additionally, co-ops offering biogas services would benefit members because, outside of processing animal waste, the co-op could receive new revenue streams from tip fees for processing waste from other sources, selling biogas, and selling biogas residues to farmers as fertilizer.
Midwestern co-ops are extremely well positioned to become major players in the American biogas space if they act on their current location, business environment, and business model advantages. Doing so will benefit their bottom line, the environment, and the farmers.
[i] “Anaerobic Digestion on Swine Farms.” EPA, Environmental Protection Agency, 4 Oct. 2022.
[ii] “Anaerobic Digestion on Dairy Farms.” EPA, Environmental Protection Agency, 27 Oct. 2022.
[iii] “Average Cost to Landfill Municipal Solid Waste in The United States in 2020 and 2021, by Region (in U.S. Dollars per Ton).” EREF, and Waste360, Statista Inc., 22 Feb 2022.
[iv] “Population density in the U.S. by federal states including the District of Columbia in 2021.” U.S. Census Bureau, Statista Inc., Dec 2021.
[v] Lieb, Theresa. “Supply Chain Emissions Are Top of Mind for Food and Ag.” Greenbiz, 21 July 2022
[vi] “Anaerobic Digestion on Swine Farms” and “Anaerobic Digestion on Dairy Farms.” EPA, Environmental Protection Agency.
[vii] “Co-Ops: A Key Part of Rural America.” USDA.
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