Circular economics

FAIRMOUNT, N.D. -- Wallie Hardie is one of many North Dakotans who would like to see nitrogen fertilizer produced locally, rather than imported from 7,000 miles away. A nationally known corn grower leader from Fairmount, N.D., Hardie says the price of fertilizer follows the price of corn and has nothing to do with the price of manufacturers' costs of goods. Fertilizer producers have farmers "by the throat, and they're squeezing," Hardie says.

"Their cost of goods right now is about half of what they're charging us farmers."

Hardie has been pushing a small-scale "designer fertilizer" concept (also called "smart nitrogen" and "enhanced efficiency fertilizer"). The $20 million units stand in contrast to $1.5 billion projects that some of his friends in the corn industry are promoting for commodity nitrogen.

That's OK, says Hardie, who has a long history of thinking outside the box when it comes to corn and ethanol development in the region.

Hardie is involved in using "angel funds," which offer state tax credits for investors in ethanol-related manufacturing companies through a company called Agrebon. The angel fund has been approaching investors for the project since March 2012.

The economic circle

Like the college instructor that he once was, Hardie points to a schematic he's drawn on a white board in his farm office. It illustrates the "circular economy" principle that will allow the project to work through deep relationships among suppliers and partners.

"In the circular economy, things come back around," he says, quoting an executive analysis by the international lender Rabobank. "In the future, our businesses are going from transactional to 'transformational partnerships.'"

Hardie's ideas are often unique and not shared by the majority.

In 1987, he was farming and working part-time for an extension service. He approached the National Corn Growers Association about starting a state affiliate association in North Dakota and about getting NCGA help in countervailing duty in Canada.

There were only 300,000 acres of corn in the state then, less than a tenth of today's acreage. He arranged for seed sellers to give a bag of corn to the first 100 members to start the state association. It was a time of land-idling, surpluses and cheap corn. He helped the North Dakota Corn Council get its first corn check-off and was its first chairman.

He became one of the nation's ethanol proponents. "We knew that if we just stayed in food, we were dead," Hardie says, of the corn industry. "We instinctively knew we had to find a new market. I'm very proud my career involved ethanol."

He was on the original steering committee for the ProGold LLC (now Cargill) corn sweetener plant in Wahpeton, N.D. He resigned from the board when he failed to get it to diversify into ethanol as "swing" capacity. He also tried to get on the Golden Growers board, in part to promote diversification into ethanol, but was not elected for that.

Now he has other plans involving adding fertilizer production hooked onto ethanol plants. "How do you help these ethanol plants stay competitive, stay prosperous?" he says. "The corn farmer's living is dependent on whether the ethanol plant is making money."

Corn grower research

About seven years ago, Hardie became chairman of the research team of the North Dakota Corn Growers Association. A University of North Dakota researcher told the group he thought they could make nitrogen fertilizer from waste streams of coal-fired power plants, or from corn-fed ethanol plants.

The association turned away from the small scale toward the large scale.

Agrebon's project is similar to the rejected idea to produce fertilizer from waste streams, but Hardie declines to say exactly what the difference is.

"Well, I think the research is still in process," Hardie says. "We think they are going to continue to develop other catalysts, other than the iron oxide catalyst that the Haber-Bosch process uses" in the classic synthetic nitrogen manufacturing technique.

"They're still working on it. We're still pushing their technology and I think something will come of it."

A couple of years ago, the Agrebon group "tweaked" the traditional Haber-Bosch technology and came up with a small-scale system that works very well.

"That's what we pursued in the Agrebon model," he says. "We have technology we're real confident in, that's still based on the Haber-Bosch process. It is a process that allows us to produce fertilizer on an extremely small scale," he says.

The average costs go down with volume, but "Our research, our work says no: We can do this at a micro scale just as efficiently as the guys can put it out at this massive scale."

He claims his company is doing something different -- enhanced efficiency fertilizers (EEF). EEFs allow for greater uptake of fertilizer into the plant than typical fertilizers.

"We've always been into the so-called 'designer fertilizer' (marketing) space," he says. "We knew we could do it at the small scale, but we probably could not do it at the big scale. If you want to put stuff in that fertilizer to -- let's say -- to delay the release of the nitrogen to when the corn plant really needs it."

The Agrebon model would produce 20 tons of fertilizer a day, and additives can be included to delay nitrogen release. "We feel strongly we can do it on a small and local geography," Hardie says, likening it to a prescription.

"We can design our product to release nitrogen on July 1 within 20 miles of Casselton, N.D., for example," he says.

"We have the soil temperature data and we know how our product reacts to temperatures and other components -- bacteria, and other things that cause this conversion from the nitrite form into the nitrate form. It's the nitrate form that is what you want to delay as long as possible. That's the form that will leach down, and will react with water and go down below the root zone."

Ethanol plants use nitrogen to enhance their fermentation process, and they like to use an aqueous form of nitrogen, he says.

"That works best in their fermenters, but if they buy 28 percent liquid nitrogen and have to transport that in, they're paying for a lot of water," he says. Hardie says the small scale allows one of the projects to be completed in about four months. He's hoping one can be built this summer, but can't point to anything specific.

Angels and tax credits

The typical unit is $150,000. The company asks for $50,000 a year over three years.

"You get a 45 percent tax credit off the amount you invest," Hardie says. "If you have $50,000 a year of investment, you get a $23,000 credit. You can carry that forward for seven years, or $3,300 a year." The investors must be "qualified," meaning they have a net worth of $1 million or more.

Until the 2013 Legislature, the person acquiring the tax credit could transfer the credits, even give them away if they wanted -- to others not related to the project. The transferability disappeared in the 2013 Legislature, but could come back in 2015.

"We told folks that invested that this could happen," Hardie says.

"Everybody was aware. We also said, 'Don't invest in this thing because of the tax credit. Invest in the thing because you believe in ethanol. All of our projects are related to ethanol.'"

Still another project -- the primary project for the angel fund -- is a proposed Dakota Spirit Ethanol plant in Spiritwood, N.D. About 40 percent of the fund will go directly into that plant, Hardie says. Another 40 percent of the fund will be in Agrebon for the fertilizer plants.

The final 20 percent is for North American Protein, a company that has technology from Iowa State University. It combines thin stillage from ethanol plants with a fungus for 48 hours. This produces a spongy product and a supercharged water product, which enhances the fermentation product. The spongy product substitutes for fishmeal in baby pig rations.

"We're hoping we can have something rolling here soon," Hardie says of the North Dakota projects. He acknowledges the two fertilizer projects will in a sense compete for investments, but he sees them as complementary. He hopes something can be built in the region this summer and says finances are on track to make that possible.

"Ethanol plants in the state are all interested in this technology," he says. "All of them are. All of them are."