The Wood and Fiber Supply Chain Experts
BCAP Revisited
From the October 2009 Forest2Mill newsletter.
Our article in the last issue of Forest2Mill about the Biomass Crop
Assistance Program (BCAP) generated significant interest and, it turns out, controversy.
To make sure we’re all on the same page at this point, we’d like to repeat and clarify the
calculation for determing the amount of BCAP matching payments.
Keep in mind that the examples you are about to read are
hypothetical; the math—everything from the delivered price to the method for calculating moisture
content—has been simplified to make the example as clear as possible.
Currently, biomass volume is measured in green tons. A rough estimate of the ratio between
green tons and dry tons is 2:1—two green tons equals one dry ton.
If, therefore, a green ton of biomass goes for roughly $20, it stands
to reason that a dry ton of biomass would be sold for $40, as it would take two green tons to
produce one dry ton. It would appear that the matching payment would equal $40 per dry ton. (If the
price per green ton were $23, however, the matching payment on a dry ton would be $45, as the
program sets a cap of $45 per dry ton.)
The source of the controversy concerns green ton versus dry ton pricing. The
agreement that qualified Biomass Conversion Facilities (BCFs) sign with the Farm Service Agency
(FSA) requires that the facilities purchase biomass on a dry ton basis. As a result, the amount of
the matching payment will depend upon the supply agreement.
For a supplier to get full benefit from the program, the contract with the qualifying
biomass conversion facility (BCF) must specify a price per dry ton. Based on our
conversations and email exchanges with the FSA on this matter, there is a strong possibility that a
contract written based on a price per green ton could result in that price being applied to the
number of dry tons in order to determine the amount of the matching payment. The following table
illustrates what might happen:
As this example shows, Contract 2 would result in the supplier making $250/load less than
the supplier with Contract 1. If Contract 2 specified that the price per dry ton was $40, however,
this inequity would be erased.
As a result of the lack of clarity around the calculations, we recommend that biomass
producers do the following before entering into supply agreements with qualified BCFs:
- Agree to a moisture measuring method. The FSA does not specify the method of measuring moisture, instead it leaves the method up to the BCFs or the parties involved in the supply agreement. Of course, measuring moisture content can be a time-consuming and expensive procedure. As a result, the market will likely find a fair and reasonable standard.
- Agree to a price per dry ton based on the moisture level and make sure the language in the contract is specific on this point. Before signing a supply agreement, calculate price on both on a per green ton and per dry ton basis in order to confirm that the price will provide a reasonable profit margin.