Thursday, December 31, 2009

Ethiopian Farms Lure Investor Funds as Workers Live in Poverty

Dec. 31 (Bloomberg) -- Until last year, people in the Ethiopian settlement of Elliah earned a living by farming their land and fishing. Now, they are employees.

Dozens of women and children pack dirt into bags for palm seedlings along the banks of the Baro River, seedlings whose oil will be exported to India and China. They work for Bangalore- based Karuturi Global Ltd., which is leasing 300,000 hectares (741,000 acres) of local land, an area larger than Luxembourg.

The jobs pay less than the World Bank’s $1.25-per-day poverty threshold, even as the project has the potential to enrich international investors with annual earnings that the company expects to exceed $100 million by 2013.

“My business is the third wave of outsourcing,” Sai Ramakrishna Karuturi, the 44-year-old managing director of Karuturi Global, said at the company’s dusty office in the western town of Gambella. “Everyone is investing in China for manufacturing; everyone is investing in India for services. Everybody needs to invest in Africa for food.”

Companies and governments are buying or leasing African land after cereals prices almost tripled in the three years ended April 2008. Ghana, Madagascar, Mali and Ethiopia alone have approved 1.4 million hectares of land allocations to foreign investors since 2004, according to the International Institute for Environment and Development in London.

Emergent Asset Management Ltd.’s African Agricultural Land Fund opened last year. On Nov. 23, Moscow-based Pharos Financial Advisors Ltd. and Dubai-based Miro Asset Management Ltd. announced the creation of a $350 million private equity fund to invest in agriculture in developing countries.

‘Last Frontier’

“African agricultural land is cheap relative to similar land elsewhere; it is probably the last frontier,” said Paul Christie, marketing director at Emergent Asset Management in London. The hedge fund manager has farm holdings in South Africa, Mozambique and Zimbabwe.

“I am amazed it has taken this long for people to realize the opportunities of investing in African agriculture,” Christie said.

Monsoon Capital of Bethesda, Maryland, and Boston-based Sandstone Capital are among the shareholders of Karuturi Global, Karuturi said. The company is also the world’s largest producer of roses, with flower farms in India, Kenya and Ethiopia.

One advantage to starting a plantation 50 kilometers (31 miles) from the border with war-torn Southern Sudan and a four- day drive to the nearest port: The land is free. Under the agreement with Ethiopia’s government, Karuturi pays no rent for the land for the first six years. After that, it will pay 15 birr (U.S. $1.18) per hectare per year for the next 84 years.

More Elsewhere

Land of similar quality in Malaysia and Indonesia would cost about $350 per hectare per year, and tracts of that size aren’t available in Karuturi Global’s native India, Karuturi said.

Labor costs of less than $50 a month per worker and duty- free treaties with China and India also attracted Karuturi Global, he said. The $100 million projected annual profit will come from the export of food crops, including corn, rice and palm oil, he said. The company also is plowing land on a 10,900- hectare spread near the central Ethiopian town of Bako.

The project will give the government revenue from corporate income taxes and from future leases, as well as from job creation, said Omod Obang Olom, president of Ethiopia’s Gambella region and an ally of Prime Minister Meles Zenawi’s ruling party.

“This strategy will build up capitalism,” he said in an interview in Gambella. “The message I want to convey is there is room for any investor. We have very fertile land, there is good labor here, we can support them.” The government plans to allot 3 million hectares, or about 4 percent of its arable land, to foreign investors over the next three years.

Surprised Workers

Workers in Elliah say they weren’t consulted on the deal to lease land around the village, and that not much of the money is trickling down.

At a Karuturi site 20 kilometers from Elliah, more than a dozen tractors clear newly burned savannah for a corn crop to be planted in June. Omeud Obank, 50, guards the site 24 hours a day, six days a week. The job helps support his family of 10 on a salary of 600 birr per month, more than the 450 birr he earned monthly as a soldier in the Ethiopian army.

Obank said it isn’t enough to adequately feed and clothe his family.

“These Indians do not have any humanity,” he said, speaking of his employers. “Just because we are poor it doesn’t make us less human.”

One Meal

Obang Moe, a 13-year-old who earns 10 birr per day working part-time in a nursery with 105,000 palm seedlings, calls her work “a tough job.” While the cash income supplements her family’s income from their corn plot, she said that many days they still only have enough food for one meal.

The fact that the project is based on a wage level below the World Bank’s poverty limit is “quite remarkable,” said Lorenzo Cotula, a researcher with the London-based IIED.

Large-scale export-oriented plantations may keep farmers from accessing productive resources in countries such as Ethiopia, where 13.7 million people depend on foreign food aid, according to a June report by Olivier De Schutter, the United Nations special rapporteur on the right to food. It called for ensuring that revenue from land contracts be “sufficient to procure food in volumes equivalent to those which are produced for exports.”

Karuturi said his company pays its workers at least Ethiopia’s minimum wage of 8 birr, and abides by Ethiopia’s labor and environmental laws.

‘Easily Exploitable’

“We have to be very, very cognizant of the fact that we are dealing with people who are easily exploitable,” he said, adding that the company will create up to 20,000 jobs and has plans to build a hospital, a cinema, a school and a day-care center in the settlement. “We’re going to have a very healthy township that we will build. We are creating jobs where there were none.”     The project may help cover part of the $44 billion a year that the UN Food and Agriculture Organization says must be invested in agriculture in poor nations to halve the number of the world’s hungry people by 2015.

“We keep saying the big problem is, you need investment in African agriculture; well here are a load of guys who for whatever reason want to invest,” David Hallam, deputy director of the FAO’s trade and markets division, said in an interview in Rome. “So the question is, is it possible to sort of steer it toward forms of investment that are going to be beneficial?”

Buntin Buli, a 21-year-old supervisor at the nursery who earns 600 birr a month, said he hopes Karuturi will use some of its earnings to improve working conditions and provide housing and food.      “Otherwise we would have been better off working on our own lands,” he said. “This is a society that has been very primitive. We want development.”

To contact the reporter on this story: Jason McLure in Addis Ababa via the Johannesburg bureau at abolleurs@bloomberg.net .

Wednesday, December 30, 2009

Corn Cobs Have Energy Use

DECEMBER 30, 2009

By IAN BERRY, Wall Street Journal

The corn cob could go from farmer trash to treasure if an effort by the world's largest ethanol maker takes root.

Poet, Sioux Falls, S.D., is readying production of a new cellulosic ethanol plant that uses the corn waste product, rather than corn itself, to make the biofuel. The plant, located in Emmitsburg, Iowa, where Poet already has a traditional corn-based ethanol refinery, is expected to produce 25 million gallons per year once it starts commercial production in 2011. Poet already has a pilot project in Scotland, S.D., that produced about 20,000 gallons of cellulosic ethanol since it opened in November 2008.

The plant, called Project Liberty, could be a new revenue source for farmers, proponents say, although the future for the technology remains uncertain.

"We're looking at $30 to $60 per ton is what we'd be paying for the corn cobs," said Scott Weishaar, vice president of Commercial Development for Poet. "You take a look at a farmer who maybe has 1,000 or 2,000 acres of corn, that's pretty significant incremental income to his operation."

Currently, farmers have little use for the stripped-down corn cobs. The industry is moving toward cellulosic, as spelled out in the Environmental Protection Agency's renewable-fuel mandate. The mandate calls for cellulosic ethanol to account for 16 billion gallons of the total 36 billion gallons of production by 2022. Other sources for the cellulosic ethanol include wood waste, switchgrass and other corn "residue" besides the cob, such as the stalks. Corn cobs are currently the sole focus of Poet's cellulosic effort.

Unlike some of the other corn residue, the cobs are seen as having little if any value to the land and can be removed without depleting the soil. And the cob, unlike the grain, doesn't ignite the "food versus fuel" debate. Poet said that it is quickly finding ways to make cellulosic ethanol profitable. Since the pilot project started, it has cut costs almost in half, to $2.35 per gallon from $4.13, by reducing energy usage and enzyme costs, among other expenses. It costs roughly 50 to 80 cents more per gallon to make ethanol from corn cobs than from the grain, Poet said.

It hopes to have the costs per gallon below $2 by the start of commercial operation. Ethanol futures are trading around $1.90 at the Chicago Board of Trade.

Chief Executive Jeff Broin said that two years ago he would have considered cellulosic ethanol "a long shot" but that it is now a reality.

For farmers, harvesting the cobs requires additional equipment, and Poet is working with farm machine manufacturers to "accelerate their development" of equipment that will harvest cobs, Mr. Weishaar said.

The company hosted 16 different equipment makers in Emmitsburg for a field day in November, in which industry leaders showed off prototype machines to area farmers.

One of those companies, Agco Corp., has rarely before, if ever, taken a prototype machine to such a public event, said Agco spokesman Reid Hamre. The Duluth, Ga., company is probably at least several months away from deciding whether to mass-produce the equipment.

"It's a prototype machine, we've got some more testing and exhibiting and gathering of feedback for farmers and dealers we want to do," Mr. Hamre said.

Monday, December 28, 2009

Earth-Friendly Elements, Mined Destructively

December 26, 2009

By KEITH BRADSHER, New York Times

GUYUN VILLAGE, China — Some of the greenest technologies of the age, from electric cars to efficient light bulbs to very large wind turbines, are made possible by an unusual group of elements called rare earths. The world’s dependence on these substances is rising fast.

Just one problem: These elements come almost entirely from China, from some of the most environmentally damaging mines in the country, in an industry dominated by criminal gangs.

Western capitals have suddenly grown worried over China’s near monopoly, which gives it a potential stranglehold on technologies of the future.

In Washington, Congress is fretting about the United States military’s dependence on Chinese rare earths, and has just ordered a study of potential alternatives.

Here in Guyun Village, a small community in southeastern China fringed by lush bamboo groves and banana trees, the environmental damage can be seen in the red-brown scars of barren clay that run down narrow valleys and the dead lands below, where emerald rice fields once grew.

Miners scrape off the topsoil and shovel golden-flecked clay into dirt pits, using acids to extract the rare earths. The acids ultimately wash into streams and rivers, destroying rice paddies and fish farms and tainting water supplies.

On a recent rainy afternoon, Zeng Guohui, a 41-year-old laborer, walked to an abandoned mine where he used to shovel ore, and pointed out still-barren expanses of dirt and mud. The mine exhausted the local deposit of heavy rare earths in three years, but a decade after the mine closed, no one has tried to revive the downstream rice fields.

Small mines producing heavy rare earths like dysprosium and terbium still operate on nearby hills. “There are constant protests because it damages the farmland — people are always demanding compensation,” Mr. Zeng said.

“In many places, the mining is abused,” said Wang Caifeng, the top rare-earths industry regulator at the Ministry of Industry and Information Technology in China.

“This has caused great harm to the ecology and environment.”

There are 17 rare-earth elements — some of which, despite the name, are not particularly rare — but two heavy rare earths, dysprosium and terbium, are in especially short supply, mainly because they have emerged as the miracle ingredients of green energy products. Tiny quantities of dysprosium can make magnets in electric motors lighter by 90 percent, while terbium can help cut the electricity usage of lights by 80 percent. Dysprosium prices have climbed nearly sevenfold since 2003, to $53 a pound. Terbium prices quadrupled from 2003 to 2008, peaking at $407 a pound, before slumping in the global economic crisis to $205 a pound.

China mines more than 99 percent of the world’s dysprosium and terbium. Most of China’s production comes from about 200 mines here in northern Guangdong and in neighboring Jiangxi Province.

China is also the world’s dominant producer of lighter rare earth elements, valuable to a wide range of industries. But these are in less short supply, and the mining is more regulated.

Half the heavy rare earth mines have licenses and the other half are illegal, industry executives said. But even the legal mines, like the one where Mr. Zeng worked, often pose environmental hazards.

A close-knit group of mainland Chinese gangs with a capacity for murder dominates much of the mining and has ties to local officials, said Stephen G. Vickers, the former head of criminal intelligence for the Hong Kong police who is now the chief executive of International Risk, a global security company.

Mr. Zeng defended the industry, saying that he had cousins who owned rare-earth mines and were legitimate businessmen who paid compensation to farmers.

The Ministry of Industry and Information Technology issued a draft plan last April to halt all exports of heavy rare earths, partly on environmental grounds and partly to force other countries to buy manufactured products from China. When the plan was reported on Sept. 1, Western governments and companies strongly objected and Ms. Wang announced on Sept. 3 that China would not halt exports and would revise its overall plan. But the ministry subsequently cut the annual export quota for all rare earths by 12 percent, the fourth steep cut in as many years.

Congress responded to the Chinese moves by ordering the Defense Department to conduct a comprehensive review, by April 1, of the American military’s dependence on imported rare earths for devices like night-vision gear and rangefinders.

Western users of heavy rare earths say that they have no way of figuring out what proportion of the minerals they buy from China comes from responsibly operated mines. Licensed and illegal mines alike sell to itinerant traders. They buy the valuable material with sacks of cash, then sell it to processing centers in and around Guangzhou that separate the rare earths from each other.

Companies that buy these rare earths, including a few in Japan and the West, turn them into refined metal powders.

“I don’t know if part of that feed, internal in China, came from an illegal mine and went in a legal separator,” said David Kennedy, the president of Great Western Technologies in Troy, Mich., which imports Chinese rare earths and turns them into powders that are sold worldwide.

Smuggling is another issue. Mr. Kennedy said that he bought only rare earths covered by Chinese export licenses. But up to half of China’s exports of heavy rare earths leave the country illegally, other industry executives said.

Zhang Peichen, deputy director of the government-backed Baotou Rare Earth Research Institute, said that smugglers mix rare earths with steel and then export the steel composites, making the smuggling hard to detect. The process is eventually reversed, frequently in Japan, and the rare earths are recovered. Chinese customs officials have stepped up their scrutiny of steel exports to try to stop this trick, one trader said.

According to the Baotou institute, heavy rare-earth deposits in the hills here will be exhausted in 15 years. Companies want to expand production outside China, but most rare-earth deposits, unlike those in southern China, are accompanied by radioactive uranium and thorium that complicate mining.

Multinational corporations are starting to review their dependence on heavy rare earths. Toyota said that it bought auto parts that include rare earths, but did not participate in the purchases of materials by its suppliers. Osram, a large lighting manufacturer that is part of Siemens of Germany, said it used the lowest feasible amount of rare earths.

The biggest user of heavy rare earths in the years ahead could be large wind turbines, which need much lighter magnets for the five-ton generators at the top of ever-taller towers. Vestas, a Danish company that has become the world’s biggest wind turbine manufacturer, said that prototypes for its next generation used dysprosium, and that the company was studying the sustainability of the supply. Goldwind, the biggest Chinese turbine maker, has switched from conventional magnets to rare-earth magnets.

Executives in the $1.3 billion rare-earths mining industry say that less environmentally damaging mining is needed, given the importance of their product for green energy technologies. Developers hope to open mines in Canada, South Africa and Australia, but all are years from large-scale production and will produce sizable quantities of light rare earths. Their output of heavy rare earths will most likely be snapped up to meet rising demand from the wind turbine industry.

“This industry wants to save the world,” said Nicholas Curtis, the executive chairman of the Lynas Corporation of Australia, in a speech to an industry gathering in Hong Kong in late November. “We can’t do it and leave a product that is glowing in the dark somewhere else, killing people.”

Wednesday, December 23, 2009

Builders Zero In on New Goal of Energy-Neutral Housing

DECEMBER 23, 2009

By JIM CARLTON, Wall Street Journal

The green building movement is targeting a goal once thought virtually unattainable: zero net energy use.

While the trend is nascent, dozens of "net zero" and "near net zero" developments -- projects designed to use only about as much power from the public grid as they can save or produce on their own -- have sprung up across the U.S. over the past five years.

In Greenfield, Mass., nonprofit Rural Development Inc. has completed eight of 20 planned duplex homes that use almost no net energy. In Berkeley, Calif., ZETA Communities Inc. plans to build a 30-unit net-zero apartment building after opening a factory that can construct 400 to 500 prefabricated net-zero homes a year. And in Green Valley, Ariz., builder Pepper Viner Homes says it plans to incorporate green techniques into a senior housing community so that it reduces energy use more than 50%. U.S. officials are working to wean federal buildings off fossil fuel by 2020, a step they say will help the buildings become almost net-zero energy users.

Behind the push is the fact that buildings are a major consumer of power, accounting for an estimated 40% of energy usage in the U.S.

But a bigger shift toward net-zero construction faces hurdles, largely because such buildings often are more expensive to build. To reach zero energy use, for instance, a building needs to produce its own power such as through solar or wind. Rooftop solar panels can cost upward of $10,000 on a three-bedroom home alone.

Some industry analysts say the costs of erecting net-zero homes have declined somewhat as green building has become more mainstream. With energy costs more than doubling across the U.S. in the past decade, energy-savings measures have become more attractive to builders.

In Greenfield, Mass., where Rural Development is putting up duplexes, the premium for a net-zero home is as much as 15%. For example, it has one three-bedroom home on the market for $240,000, compared with about $203,000 for a comparable home without net-zero features, says Anne Perkins, a Rural Development director. Most of that extra cost is for solar systems, she says.

Eight of Rural Development's net-zero homes built so far have been purchased. One selling point: energy bills that can run more than $2,700 a year are cut to about $700, and total energy savings allow buyers to recoup the purchase premium in roughly 12 years after tax incentives and rebates are included.

Officials of Western Massachusetts Electric Co., which provided financial incentives for the development, say they want to see more projects like this. "The more you can have of this type of work, the less power plants you have to put on line," says John Walsh, a conservation supervisor at the utility.

Some consumers have found a way to add green features to their homes without piling on extra costs. In Hermosa Beach, Calif., Robert and Monica Fortunato are planning to expand their 50-year-old home, adding 611 square feet to their existing 1,329 square feet. The two are committed environmentalists, and their plan is to make the home net zero, despite the increase in size. They expect the work to cost $400,000, about the same as a conventional remodeling that lacked energy savings.

Mr. Fortunato, a management consultant, says he and his wife, an occupational therapist, plan to use special insulation panels that help modulate room temperatures by melting and resolidifying of paraffin wax inside, which reduces energy costs. They would offset the cost of the panels by not having to buy a big furnace.

"We want to save the planet," says Ms. Fortunato.

Write to Jim Carlton at jim.carlton@wsj.com

Thursday, December 17, 2009

Monsanto Squeezes Out Seed Business Competition, AP Investigation Finds

CHRISTOPHER LEONARD | 12/13/09 01:45 PM | Associated Press

WHAT'S YOUR REACTION?

ST. LOUIS — Confidential contracts detailing Monsanto Co.'s business practices reveal how the world's biggest seed developer is squeezing competitors, controlling smaller seed companies and protecting its dominance over the multibillion-dollar market for genetically altered crops, an Associated Press investigation has found.

With Monsanto's patented genes being inserted into roughly 95 percent of all soybeans and 80 percent of all corn grown in the U.S., the company also is using its wide reach to control the ability of new biotech firms to get wide distribution for their products, according to a review of several Monsanto licensing agreements and dozens of interviews with seed industry participants, agriculture and legal experts.

Declining competition in the seed business could lead to price hikes that ripple out to every family's dinner table. That's because the corn flakes you had for breakfast, soda you drank at lunch and beef stew you ate for dinner likely were produced from crops grown with Monsanto's patented genes.

Monsanto's methods are spelled out in a series of confidential commercial licensing agreements obtained by the AP. The contracts, as long as 30 pages, include basic terms for the selling of engineered crops resistant to Monsanto's Roundup herbicide, along with shorter supplementary agreements that address new Monsanto traits or other contract amendments.

The company has used the agreements to spread its technology – giving some 200 smaller companies the right to insert Monsanto's genes in their separate strains of corn and soybean plants. But, the AP found, access to Monsanto's genes comes at a cost, and with plenty of strings attached.

For example, one contract provision bans independent companies from breeding plants that contain both Monsanto's genes and the genes of any of its competitors, unless Monsanto gives prior written permission – giving Monsanto the ability to effectively lock out competitors from inserting their patented traits into the vast share of U.S. crops that already contain Monsanto's genes.

Monsanto's business strategies and licensing agreements are being investigated by the U.S. Department of Justice and at least two state attorneys general, who are trying to determine if the practices violate U.S. antitrust laws. The practices also are at the heart of civil antitrust suits filed against Monsanto by its competitors, including a 2004 suit filed by Syngenta AG that was settled with an agreement and ongoing litigation filed this summer by DuPont in response to a Monsanto lawsuit.

The suburban St. Louis-based agricultural giant said it's done nothing wrong.

"We do not believe there is any merit to allegations about our licensing agreement or the terms within," said Monsanto spokesman Lee Quarles. He said he couldn't comment on many specific provisions of the agreements because they are confidential and the subject of ongoing litigation.

"Our approach to licensing (with) many companies is pro-competitive and has enabled literally hundreds of seed companies, including all of our major direct competitors, to offer thousands of new seed products to farmers," he said.

The benefit of Monsanto's technology for farmers has been undeniable, but some of its major competitors and smaller seed firms claim the company is using strong-arm tactics to further its control.

"We now believe that Monsanto has control over as much as 90 percent of (seed genetics). This level of control is almost unbelievable," said Neil Harl, agricultural economist at Iowa State University who has studied the seed industry for decades. "The upshot of that is that it's tightening Monsanto's control, and makes it possible for them to increase their prices long term. And we've seen this happening the last five years, and the end is not in sight."

At issue is how much power one company can have over seeds, the foundation of the world's food supply. Without stiff competition, Monsanto could raise its seed prices at will, which in turn could raise the cost of everything from animal feed to wheat bread and cookies.

The price of seeds is already rising. Monsanto increased some corn seed prices last year by 25 percent, with an additional 7 percent hike planned for corn seeds in 2010. Monsanto brand soybean seeds climbed 28 percent last year and will be flat or up 6 percent in 2010, said company spokeswoman Kelli Powers.

Monsanto's broad use of licensing agreements has made its biotech traits among the most widely and rapidly adopted technologies in farming history. These days, when farmers buy bags of seed with obscure brand names like AgVenture or M-Pride Genetics, they are paying for Monsanto's licensed products.

One of the numerous provisions in the licensing agreements is a ban on mixing genes – or "stacking" in industry lingo – that enhance Monsanto's power.

One contract provision likely helped Monsanto buy 24 independent seed companies throughout the Farm Belt over the last few years: that corn seed agreement says that if a smaller company changes ownership, its inventory with Monsanto's traits "shall be destroyed immediately."

Another provision from contracts earlier this decade_ regarding rebates – also help explain Monsanto's rapid growth as it rolled out new products.

One contract gave an independent seed company deep discounts if the company ensured that Monsanto's products would make up 70 percent of its total corn seed inventory. In its 2004 lawsuit, Syngenta called the discounts part of Monsanto's "scorched earth campaign" to keep Syngenta's new traits out of the market.

Quarles said the discounts were used to entice seed companies to carry Monsanto products when the technology was new and farmers hadn't yet used it. Now that the products are widespread, Monsanto has discontinued the discounts, he said.

The Monsanto contracts reviewed by the AP prohibit seed companies from discussing terms, and Monsanto has the right to cancel deals and wipe out the inventory of a business if the confidentiality clauses are violated.

Thomas Terral, chief executive officer of Terral Seed in Louisiana, said he recently rejected a Monsanto contract because it put too many restrictions on his business. But Terral refused to provide the unsigned contract to AP or even discuss its contents because he was afraid Monsanto would retaliate and cancel the rest of his agreements.

"I would be so tied up in what I was able to do that basically I would have no value to anybody else," he said. "The only person I would have value to is Monsanto, and I would continue to pay them millions in fees."

Independent seed company owners could drop their contracts with Monsanto and return to selling conventional seed, but they say it could be financially ruinous. Monsanto's Roundup Ready gene has become the industry standard over the last decade, and small companies fear losing customers if they drop it. It also can take years of breeding and investment to mix Monsanto's genes into a seed company's product line, so dropping the genes can be costly.

Monsanto acknowledged that U.S. Department of Justice lawyers are seeking documents and interviewing company employees about its marketing practices. The DOJ wouldn't comment.

A spokesman for Iowa Attorney General Tom Miller said the office is examining possible antitrust violations. Additionally, two sources familiar with an investigation in Texas said state Attorney General Greg Abbott's office is considering the same issues. States have the authority to enforce federal antitrust law, and attorneys general are often involved in such cases.

Monsanto chairman and chief executive officer Hugh Grant told investment analysts during a conference call this fall that the price increases are justified by the productivity boost farmers get from the company's seeds. Farmers and seed company owners agree that Monsanto's technology has boosted yields and profits, saving farmers time they once spent weeding and money they once spent on pesticides.

But recent price hikes have still been tough to swallow on the farm.

"It's just like I got hit with bad weather and got a poor yield. It just means I've got less in the bottom line," said Markus Reinke, a corn and soybean farmer near Concordia, Mo. who took over his family's farm in 1965. "They can charge because they can do it, and get away with it. And us farmers just complain, and shake our heads and go along with it."

Any Justice Department case against Monsanto could break new ground in balancing a company's right to control its patented products while protecting competitors' right to free and open competition, said Kevin Arquit, former director of the Federal Trade Commission competition bureau and now a antitrust attorney with Simpson Thacher & Bartlett LLP in New York.

"These are very interesting issues, and not just for the companies, but for the Justice Department," Arquit said. "They're in an area where there is uncertainty in the law and there are consumer welfare implications and government policy implications for whatever the result is."

Other seed companies have followed Monsanto's lead by including restrictive clauses in their licensing agreements, but their products only penetrate smaller segments of the U.S. seed market. Monsanto's Roundup Ready gene, on the other hand, is in such a wide array of crops that its licensing agreements can have a massive effect on the rules of the marketplace.

Monsanto was only a niche player in the seed business just 12 years ago. It rose to the top thanks to innovation by its scientists and aggressive use of patent law by its attorneys.

First came the science, when Monsanto in 1996 introduced the world's first commercial strain of genetically engineered soybeans. The Roundup Ready plants were resistant to the herbicide, allowing farmers to spray Roundup whenever they wanted rather than wait until the soybeans had grown enough to withstand the chemical.

The company soon released other genetically altered crops, such as corn plants that produced a natural pesticide to ward off bugs. While Monsanto had blockbuster products, it didn't yet have a big foothold in a seed industry made up of hundreds of companies that supplied farmers.

That's where the legal innovations came in, as Monsanto became among the first to widely patent its genes and gain the right to strictly control how they were used. That control let it spread its technology through licensing agreements, while shaping the marketplace around them.

Back in the 1970s, public universities developed new traits for corn and soybean seeds that made them grow hardy and resist pests. Small seed companies got the traits cheaply and could blend them to breed superior crops without restriction. But the agreements give Monsanto control over mixing multiple biotech traits into crops.

The restrictions even apply to taxpayer-funded researchers.

Roger Boerma, a research professor at the University of Georgia, is developing specialized strains of soybeans that grow well in southeastern states, but his current research is tangled up in such restrictions from Monsanto and its competitors.

"It's made one level of our life incredibly challenging and difficult," Boerma said.

The rules also can restrict research. Boerma halted research on a line of new soybean plants that contain a trait from a Monsanto competitor when he learned that the trait was ineffective unless it could be mixed with Monsanto's Roundup Ready gene.

Boerma said he hasn't considered asking Monsanto's permission to mix its traits with the competitor's trait.

"I think the co-mingling of their trait technology with another company's trait technology would likely be a serious problem for them," he said.

Quarles pointed out that Monsanto has signed agreements with several companies allowing them to stack their traits with Monsanto's. After Syngenta settled its lawsuit, for example, the companies struck a broad cross-licensing accord.

At the same time, Monsanto's patent rights give it the authority to say how independent companies use its traits, Quarles said.

"Please also keep in mind that, as the (intellectual property developer), it is our right to determine who will obtain rights to our technology and for what purpose," he said.

Monsanto's provision requiring companies to destroy seeds containing Monsanto's traits if a competitor buys them prohibited DuPont or other big firms from bidding against Monsanto when it snapped up two dozen smaller seed companies over the last five years, said David Boies, a lawyer representing DuPont who previously was a prosecutor on the federal antitrust case against Microsoft Corp.

Competitive bids from companies like DuPont could have made it far more expensive for Monsanto to bring the smaller companies into its fold. But that contract provision prevented bidding wars, according to DuPont.

"If the independent seed company is losing their license and has to destroy their seeds, they're not going to have anything, in effect, to sell," Boies said. "It requires them to destroy things – destroy things they paid for – if they go competitive. That's exactly the kind of restriction on competitive choice that the antitrust laws outlaw."

Quarles said some of the Monsanto contracts let companies sell their inventory for a period of time, rather than be required to destroy it. Seed companies also don't have to pay royalty fees on the bags of seed they destroyed.

"Simply put, it was designed to facilitate early adoption of the technology," he said.

Some independent seed company owners say they feel increasingly pinched as Monsanto cements its leadership in the industry.

"They have the capital, they have the resources, they own lots of companies, and buying more. We're small town, they're Wall Street," said Bill Cook, co-owner of M-Pride Genetics seed company in Garden City, Mo., who also declined to discuss or provide the agreements. "It's very difficult to compete in this environment against companies like Monsanto."

Thursday, December 10, 2009

Japanese ready for new C02 economy

Marketplace

AMERICAN PUBLIC MEDIA

TEXT OF STORY

Kai Ryssdal: Much of the discussion in Copenhagen is going to be about rich countries versus poor. Developed economies versus those that are still developing. Who's going to cut their emissions? By how much? And just plain -- how. How are they going to do it? Japan offers some pretty good lessons. From KQED, Rob Schmitz reports.

ROB SCHMITZ: Meet the Sakaki family: dad Hiroshi, mom Yukiko, and three year-old daughter, May.

The Sakakis have a heater in their home, but they prefer to wear sweaters. Their power strips have individual on/off switches so their appliances won't waste energy. They only buy energy-efficient lights. Each night, they share bath water. Their bathtub talks to them. It warns them when they're wasting energy.

The Sakakis aren't rabid environmentalists. They're just an average Japanese family living in Tokyo, and they do whatever it takes to save energy. Energy costs twice as much here as in the U.S. That's because Japan imports nearly all its fossil fuels. The lessons most Americans are starting to learn from rising oil prices are ones the Japanese learned three decades ago, after the steep oil price hikes of the 1970s.

Economist Yukari Yamashita recalls the oil price surge had Japan's economy on the brink of collapse.

YUKARI YAMASHITA: The prices of everything went up because of the oil crisis, so everybody was aware that we have to do something, otherwise our life itself won't be sustainable.

Yamashita says it was as if the country were at war. The government held emergency meetings, quickly passing a series of conservation laws. It forced factories to replace old, inefficient boilers and assembly-line machinery with new energy-saving equipment. New energy taxes funded programs like low-interest loans for companies that made industry more energy efficient. As a result, Japan, the world's second-largest economy, now consumes one-half the energy -- per capita -- of the United States.

At a factory near the city of Kyoto, "singing" robots carry parts from one assembly line to another. Nowhere have these energy-saving measures had more impact than on Japan's industrial sector, where current energy use is on par with levels 40 years ago; this, despite dramatic economic growth since then.

Air conditioner-maker Daikin owns this plant. Under Japanese law, manufacturers have to become 1 percent more energy efficient every year, and dedicate at least one staff member to overseeing this effort. Daikin has eight.

Also, manufacturers have to make sure that any new appliance they put on the market is at least as efficient as the best current model. Back in his office, manager Shinya Okada says he disliked the law when it was passed 12 years ago.

SHINYA OKADA: But now we find it valuable to compete with one another and develop technology not only to meet the strict government standards, but to cater to the needs of our customers.

And that makes Japanese companies more competitive, says Llewelyn Hughes, Japan expert at George Washington University. He remembers when it was fashionable to say "America innovates, Japan imitates."

LLEWELYN HUGHES: Perhaps an opportunity exists to go the other way. That is, to learn from Japan; learn the lessons, which have already been learned within Japanese national economy about how to better promote energy efficiency and also improve competitiveness in this particular sphere of the economy.

Japan's got a head start: A recent global survey showed Japan owns 40 percent of the world's patents in green technology. The U.S. came in second with just 12 percent.

In Tokyo, I'm Rob Schmitz for Marketplace.

Friday, December 4, 2009

Green Acres Is the Place to Be

DECEMBER 2, 2009

The Recession Is Inspiring More Young Families and Singles to Head Back to the Country

By GWENDOLYN BOUNDS, Wall Street Journal

In June, 40-year-old Shane Dawley and his 36-year-old wife, Rhonda, uprooted themselves and their four boys from their suburban Atlanta rental home and bought an old five-acre farmhouse in Ogdensburg, Wisc. Their goal: Flee the rat race and adopt a more self-reliant lifestyle amid the troubled economy.

While Mr. Dawley, who had worked at a parking garage, hasn't found a full-time job yet, he's been working on nearby farms learning new skills (one person paid him with an old John Deere tractor), and his family is raising chickens while learning to garden and hunt.

"Our generation has never seen anything like this," says Mr. Dawley of the economic downturn. "Fear sometimes is a good thing and will push you to do things you ordinarily wouldn't."

While urban and suburban real estate is still generally under pressure, the rural market is holding up better in many areas, thanks in part to buyers such as the Dawleys. Sometimes dubbed "ruralpolitans," these city and town dwellers are looking at land as their new safe investment, one they hope could prove more stable than their jobs and 401(k)s—and provide a better lifestyle.

Motivations can vary, but typically there are three groups: young people buying land as an asset or investment, with vague hopes to live on it someday; exurban commuters who have jobs in big towns or cities but want to escape the sprawl; and back-to-the-land types who want to dabble in hobby farming. While the 76 million-strong baby boomers eyeing retirement represent the largest ruralpolitan segment, they're being joined by a growing contingent of 20-to-early-40-somethings freshly imprinted by this recession's pain.

Transplants to the countryside can accumulate an arsenal of heavy duty tools such as chain saws and leaf blowers. WSJ's Wendy Bounds puts her country chops to the test with an off-road utility vehicle.

Kathryn O'Shea-Evans, a 25-year-old freelance writer, moved from Portland, Ore., to New York on Dec. 31, 2006. When the economy began floundering, she was frugal—living in a $650-a-month boarding-house room, buying clothing in resale shops, and socking away part of each paycheck.

Then, this past August, she flew to Montana to look at a place to invest those savings: a $12,000, 12-acre parcel of land.

"From the minute I landed in New York City, every job I've had I've been worried will end any moment," says Ms. O'Shea-Evans, who is now working on a "permalance" basis as an editorial assistant at Travel + Leisure magazine. She passed on the 12 acres but is continuing her rural-property search. "It's totally worth it to put every extra dime into buying something that I will know is there," she says. She is now looking for something with a house on it.

At United Country Real Estate Inc., one of the country's largest real estate groups dedicated to rural properties, the average residential sale price climbed 7% last year from 2006 levels, before the recession began. This year, says the firm, based in Kansas City, Mo., prices are expected to be up 2% from 2006. That's compared to an expected 22% median price decline nationally in existing single-family homes in 2009 from 2006 levels, as tracked by the National Association of Realtors——a drop exacerbated by the number of distressed homes sold at discount.

United broker Inez Freeman Pahlmann in West Plains, Mo., cites "a big, big trend toward the younger generation moving back to the rural" areas to be more self-sufficient, even if they earn a lower salary. Likewise, Ms. O'Shea-Evans's United Country agent, Tom VanHoose in Great Falls, Mont., says young clients in their late 20s and 30s have jumped from just a handful a few years ago to 15% of his business.

"Most of these kids say they've just saved and want to put their money someplace that won't go away," Mr. VanHoose says. "They see General Motors go down and AIG go down and they are asking, 'Gee, can my company go down?' There's a lot of angst and anxiety."

At Mossy Oak Properties Inc., a West Point, Miss.-based real estate franchise specializing in rural properties, royalties from sales rose almost 10% in the first three quarters of 2009 from a year earlier. Higher commodity prices in recent years have helped boost rural land values in some farming regions, says Lannie Wallace, Mossy Oak's executive vice president, who believes younger clients view farm and timberland as a long-term investment. "They've seen their parents' stock investments lose 30% to 40% and think: 'If I buy this piece of property and all else fails, I've still got this piece of property.' "

Certainly the country life isn't for everyone, and the grass can stop seeming quite so green when you actually get there. Surprises such as backed-up septic systems, murky well water, voracious weeds and assorted vermin add their own pressures.

Mr. Dawley's family wanted to raise chickens for eggs, but when they bought the generic "assortment" mix at the local cooperative, they ended up with more roosters than hens. He and his nine-year-old, James, decided to try killing one—"My wife didn't want anything to do with that," he says—and cooking it.

It turns out that roosters can be tough. "We took one bite and it was like, 'We can't eat this thing,' " says Mr. Dawley. Their garden ambitions fizzled after the soil turned out to be acidic (they didn't test it first) and half the crops died. "That will all be different next year," he says.

Similarly, when Kent Wiles, 48, and his wife, Lynn, 50, and daughter, Zia, 11, first moved from Portland, Ore., to rural Clatskanie, they were eager to buy horses but didn't do enough homework. The first season, the horse destroyed the fields by overgrazing and punching holes in the pasture, until Mr. Wiles learned he needed to fence off sections and rotate the animals. And then there was the manure: "Horses are just massive pooping tubes with four legs," he says.

He heaped the waste into smelly piles that attracted flies, before deciding to build bins. "I was out there in the winter in the dark with the headlights of the truck going, freezing my hands off building these bins," he says. "And I'm realizing, 'Hmmm, this isn't how I pictured it.' "

History shows economic downturns or disasters such as the Sept. 11 terrorist attacks frequently trigger a short-lived appetite for escape, and that those approaching retirement often crave more-remote properties. If baby boomers follow typical migration patterns, the rural population age 55-85 will increase by 30% between 2010 and 2020, according to the U.S. Department of Agriculture's Economic Research Service.

But other factors, such as widespread Internet access, are giving this current ruralpolitan trend new longevity, particularly among younger generations. Enhanced renewable-energy options and associated tax credits mean homes can be more affordably powered by the sun or wind in areas where utility companies won't service cheaply.

Younger buyers, such as Jesse Ptacek, 27, have time to reap payback from such investments. For the past few years, Mr. Ptacek has watched the U.S. economy flounder from Kuwait, where he's a firefighter for a U.S. Department of Defense contractor. Knowing he will likely face bleak job prospects upon his return home in January, he recently bought 62 acres of land in Montana.

His new spread, for which he paid $225,000, includes a 2,100-square-foot, three-bedroom log home situated well off the grid. Its main heat source is a wood stove, there's bear, moose and pheasant hunting nearby, and Mr. Ptacek is erecting solar panels for electricity. He expects to commute up to 60 miles for work, likely in Great Falls or Helena.

"I've done the stock-market thing, and I lost money like everyone else," says the unmarried Mr. Ptacek, whose grew up in Rochester, Minn., population 100,845. "And I started to think about things, what's real, what's not real."

Interest in small-scale hobby farming has also bloomed, particularly among the young. When environmental-news Web site Mother Nature Network ran a piece called "40 Farmers Under 40" this year, it garnered nearly 100,000 hits, one of its most popular features since the site's launch. Visitors to the Web site of Living the Country Life magazine increasingly seek info on wood stoves, solar panels and windmills.

"It's a little like the pioneer spirit," says Betsy Freese, the magazine's editor. "They still want high-speed Internet but want to feel like they are doing something else for their families."

Before his family moved to rural Clatskanie, Ore., Mr. Wiles says he was a classic "urban liberal" dweller, frequenting microbreweries, coffee shops and bookstores. Now his family lives on five acres where, in addition to horses, they also own goats and turkeys, among other animals.

He and his wife run an employment-services company for people with disabilities. One travels 60 miles to Portland several times a week for business; otherwise, they work from home. Mr. Wiles has learned to operate a compact tractor and built a horse shed, and he has acquired several guns. "Look, we're not survivalists and storing powdered milk or anything like that, but if the s—- hits the fan, I can grow all the food I want and take care of my family," he says. "It's liberating."

That pioneer spirit is also felt by manufacturers of compact tractors and small work-utility vehicles, such as the John Deere Gator. "What we are seeing in this [ruralpolitan] customer segment is growth," says Dan Paschke, product marketing manager for utility tractors at Deere & Co.'s agriculture and turf division. The biggest demographic growth segment for James River Equipment, an Asheboro, N.C., John Deere dealer, is someone who commutes to a metro market 30 to 45 minutes away. "They are buying small, easy-to-use equipment and don't have a lot of experience," says Clyde Phillips, a partner.

Manufacturers also are tweaking seats and designs to suit this new generation of first-time users, including females. "We took a lot of women out on tests to make sure the vehicles are still badass for guys but comfortable enough for a woman to drive every day," says Aaron Hanlon, product manager for Cub Cadet Utility Vehicles, a brand of MTD Products Inc. Polaris Industries Inc., known for its powerful off-road utility vehicles, this month is rolling out its first low-maintenance, eco-model: an all battery-powered ride called the Ranger EV.

For some people, the break to rural living is a hedge against an unpredictable future. Brandon Peak is a 36-year-old technician at Intel Corp. who works nights on the factory floor in Phoenix and rarely sees his wife and three children during the week. Mr. Peak's company laid off workers this year, and he's received no raise. So when his parents called recently to say they'd purchased 80 acres in Missouri, and asked if he and his family would join them to start a dairy farm, their son jumped at the chance. They're scheduled to move in March.

"I can't tell you how many people at work say, 'Man, I'd like to do that,' " Mr. Peak says. "Everybody is looking for the next opportunity for hope."

Write to Gwendolyn Bounds at wendy.bounds@wsj.com

Wednesday, December 2, 2009

Big Utility to Close 11 Plants Using Coal

December 2, 2009

By MATTHEW L. WALD, New York Times

WASHINGTON — A large Southern utility said Tuesday that it would close 30 percent of its North Carolina coal-fired power plants by 2017, a step that represents a bet that natural gas prices will stay acceptably low and that stricter rules are coming on sulfur dioxide emissions, which cause acid rain.

The utility, Progress Energy, based in Raleigh, said it would close 11 coal-fired power plants built between the 1950s and 1970s.

“Some of these plants are quite old,” said Bill Johnson, the chief executive of the company. But, he added, “They have a lot of useful life left in them, absent the need to put emissions control units on them.”

Mr. Johnson also said the company was taking a risk by reducing its output of carbon dioxide, which is not yet regulated, in the near term. He and others expect that Congress will eventually impose a limit on carbon dioxide emissions, possibly in the form of percentage reductions based on a baseline year. By closing the plants now, Progress is effectively cutting its baseline, meaning it may have to reduce emissions even further in the future.

“We need to do the right thing, regardless of that, and this is the right thing,” he said in a telephone interview. If there is a control system added later, he said, “we’d be making a strong argument, ‘Don’t penalize us for doing the right thing.’ ”

While the short-term substitute is natural gas, the long-term plan is a nuclear backbone for the company’s generating system, he said.

The plants being closed, at four sites, have a combined capacity of nearly 1,500 megawatts. Progress has spent more than $2 billion to put state-of-the-art controls on 2,500 megawatts of coal generation, the company said. And it has already announced plans for one new gas-fired plant and will soon announce additional plans, the company said. Progress is also planning to build two nuclear reactors in North Carolina and two more in Florida, but none will be in use by 2017.

Gov. Bev Perdue said in a statement that the announcement by Progress was important for the state’s air quality. “The transition toward cleaner sources of energy is good for the environment and the economy,” she said.

Progress said it might repower some coal-burning plants with wood waste. It does not anticipate large-scale wind or solar power in the near future, Mr. Johnson said. There is good wind offshore, but the area routinely experiences hurricanes that are stronger than existing wind machines can handle, he said.

Duke, another utility that operates in North Carolina, is closing some coal plants but is building a new one.

Tuesday, December 1, 2009

SolarCity & US Bancorp Find New Ways to Finance Solar Projects

November 30, 2009

by Graham Jesmer, Staff Writer RenewableEnergyWorld.com

New Hampshire, United States

As the credit crunch was starting to loosen earlier this year, one of the first glimmers of hope came from the solar energy space. In June, SolarCity and U.S. Bancorp Community Development Corporation (USBCDC) formed a partnership to finance small- and medium-scale solar projects for homeowners and businesses across the U.S. The two companies created a new US $50 million tax-equity based fund to finance projects under SolarCity's SolarLease program.

"The conversion of the ITC to a cash grant has really improved the tax equity market, and we are starting to see many new investors enter this space because of that."

The program, which was originally backed by Morgan Stanley, allows homeowners and businesses to purchase power from systems owned and installed by SolarCity through a power purchase agreement (PPA). SolarCity, the system owner, takes advantage of commercial tax credits that it then applies to customer financing.

The USBCDC fund was one of only two tax-equity funds closed in the U.S. during the first half of 2009 that applied to residential solar projects — and both of the funds were created with SolarCity to finance solar installations.

“Tax equity financing has been the primary constraint on the growth of the solar industry, so we’re obviously thrilled and very grateful to U.S. Bank,” said Lyndon Rive, CEO of SolarCity when the fund was first announced. “This fund will allow us to increase our installation throughput and hire more installers to keep pace with strong demand from American businesses and homeowners for affordable, clean solar power.”

SolarCity believes that its business model was the foremost driver in the process of getting the deal with USBCDC closed.

The company said that despite the fact that virtually every solar company in the country was looking to U.S. Bank for financing, SolarCity was chosen for three key reasons: it top quality products, its committment to customer service and the equity that solar adds to residential and commercial real estate.

Rive said making sure these areas of a company's business are strong is the best strategy to be on the radar of financiers in the still difficult economy.

“Prove yourself, make sure you are profitable and execute. It's not about who you know, it's about what you've done. The companies with the best operational track record will be the first in line to get financing,” Rive said.

Earlier this fall, SolarCity and USBCDC doubled the size of the fund to $100 million.

“Following the pilot U.S. Bank fund earlier this year, both parties were interested in continuing and expanding the relationship — SolarCity's customer demand and operational capacity have been growing so quickly that we agreed to double the portfolio size just four months after we created the initial fund. Also, our U.S. Bank fund is unusually versatile in that it can finance both residential- and commercial-scale installations, whereas some investors are interested in one type of project or the other,” Rive said.

Since the expansion, SolarCity has announced the availability of its SolarLease program to customers of Los Angeles Department of Water and Power (LADWP), the nation’s largest municipal utility. The company has also announced a new residential solar service in Oregon. SolarCity’s PurePower program allows homeonwers to pay the same rate they were previously paying for electricity from the utility company. PurePower pricing for a 3.5-kilowatt solar system in Oregon, appropriate for a typical three or four-bedroom home, starts at $30/month.

The expansion of the U.S. Bank fund has allowed the company to grow operations substantially to meet increasing demand. SolarCity has hired 140 people in the last 5 months and passed the 4,500-customer mark.

Rive said that SolarCity's growth is part of a wider trend in the PPA market that is taking place because of the market it serves.

“The market that we're addressing is the retail electricity market. So every rooftop out there is a potential for solar. The electricity industry is massive, so in our lifetimes, at least the next 20 or 30 years we are not going to come close to market saturation,” Rive said.

USBCDC, one of the nation's largest tax-credit investors, solely makes investments in tax-credit equity and the Investment Tax Credit (ITC) is an extension of the group’s long-time experience in the New Markets and Historic tax credit programs, according to Tina Lin of USDCDC's Historic, New Markets & Solar Tax Credit Investments group.

Lin also said that the group is not currently taking advantage of the Production Tax Credit (PTC) and its primary focus for renewable energy technologies is on utility-scale solar and wind turbine projects.

“We started investing in the ITC at the beginning of 2008 and have closed 10 solar-based transactions, almost all over a 1 MW in size. Within solar, we've invested in commercial/industrial installations, residential programs as well as funds. Projects have used both crystalline panels and thin-film technology,” Lin said.

The structures of USBCDC's tax equity fund deals run the gamut from direct investment, partnership flip models, lease pass-through to sale lease-back structures. USBCDC's return on investment comes primarily from the tax credits themselves so most funds they create with solar companies have short investment horizons, generally just 5 years, however most transactions are entered into with the goal of doing more business in the future.

Lin said the group’s goal is to create a diverse portfolio of product types and structures while becoming an industry leader as an equity source.

Since the closing of this deal, major changes have taken place in the solar finance space. None larger than the cash grant in lieu of ITC provision of the American Recovery and Reinvestment Act becoming an option for developers. As these funds continue to be released and as the economy in general recovers more players will be back in the solar financial picture, but Rive said that may not last unless the provision is extended.

“The conversion of the ITC to a cash grant has really improved the tax-equity market, and we are starting to see many new investors enter this space because of that. It's very important that the cash grants get extended through 2012. This will give new investors time to understand solar investments,” he said.