The Impact of Dixie Pellet’s Closure

From the September 2009 Forest2Mill newsletter.

It’s the worst kind of irony really. Over the summer, Dixie Pellets in Selma, Alabama was featured in the inaugural issue of Wood Bioenergy magazine. In July, the company was mentioned in a Wall Street Journal article on European demand for wood pellets. Good news was followed by bad, however, when later that month, news reports explained that the construction of Dixie Green Pellets (an announced sister plant in Jackson, Alabama) was on hold indefinitely. The reports suggested the delay was caused by difficulty obtaining funding.

Last week, it happened again. The plant attained status as a qualified biomass conversion facility under BCAP (more on the program), a move that would make it a preferred facility for suppliers in the Selma area. Within two days, though, the shocker appeared in the Selma Times-Journal: Dixie Pellets had shuttered its doors, telling employees not to show up on September 2. The cause: an “unforeseen financial issue” had occurred the day before. According to General Manager, Bruce Gornto. “We no longer have the funds to continue to operate.” ¹

While the cause of this “unforeseen financial issue” is yet to be confirmed by the company, the results are certain and devastating for the local economy, suppliers in the area and perhaps even the future of pellet plants that plan to export pellets to Europe.

For the economic region that includes Selma, a quick estimate of the impact the closure of Dixie Pellets will have on the economy includes the loss of 70 jobs at the plant and an estimated annual payroll of $2.5 million that is then spent in the area (70 employees x the average income of workers in wood-consuming industries in Alabama). In addition to these direct effects on the economy, additional pain will be felt by the plant’s suppliers (an indirect effect on the economy). Businesses that benefited when Dixie's employees spent their paychecks in the surrounding communities will also suffer (an induced effect on the economy). In total, a back-of-the-envelope estimate of the total direct, indirect and induced economic impact of Dixie’s closure means the loss of 258 jobs and about $7 million in payrolls.

Some of the indirect effects will be felt by the 65 companies supplying wood to Dixie. ²   The matching payments from BCAP may have made the difference between running in the red or in the black for many of the suppliers. They will now have to find new customers to make up the difference, a difficult feat in the current market.

On the other hand, those competing with Dixie Pellets for mill, in-woods chips and harvest residues will find more available supply and the potential for good deals.

What specific lessons can pellet plants intending to export pellets to Europe learn from Dixie’s experience. Three things: site location, feedstock supply and quality control.

Located on the Alabama River, Dixie Pellets’ business plan called for pellets to be barged down the Alabama River to Mobile for a few dollars per ton. Because the Alabama River is not dam controlled, the company found itself unable to get barges up and down the river in dry months. As a result, the company had to truck pellets to the port at closer to $14 per ton. A significant increase in cost, a change like this can be crippling.

Meeting standards for pellet quality is essential from the beginning. In her article for Wood Bioenergy, Jennifer McCary reports Dixie had quality issues that required it to change the raw materials used in its manufacturing processes. Some fiber they intended to use—tub grindings, for instance—adversely affected the quality of the pellets. Essent (RWE), Dixie Pellet’s European buyer, is widely known to have had issues with the quality of the pellets they were receiving. Due to requirements established by the Kyoto Protocols, European companies need clean, not just renewable sources. In order to produce “clean” pellets, a higher quality of feedstock must be used. Business plans built on lower cost feedstocks, like tub grindings, will topple under the weight of higher cost feedstocks. 

McCary also reported that Dixie’s dry line (which processed mill residues) was operating at half capacity. The company appeared to be operating at well under both the capacity required to be profitable and the capacity needed to honor its supply agreements,  Those in traditional industries here in the States understand U.S. supply chain issues: the availability of raw materials depends on a number of factors, including the amount of timber being harvested, the weather, the number of loggers in an area and the health of other industries. Energy and utility companies, both here and in Europe, expect their suppliers to deliver pellets according to contract terms. These companies are used to dealing with coal, where supply is steady and consistent. Large pellet manufacturers will have to address this issue if they plan to successfully export pellets to Europe.

In light of Dixie's closure, perhaps the biggest obstacle to overcome will be this: European companies ready to move into U.S. markets and either purchase pellets to co-fire with coal or wood chips to fire biomass-only facilities have sufficient reason to question the ability of U.S. suppliers to develop and deliver a consistent, high quality supply according to contract terms. Dixie Pellet's may have undermined U.S. credibility in this area.

¹ Faulkner, Leesha. “Dixie Pellets Closes Doors.” Selma Times-Journal. September 2, 2009.
² McCary, Jennifer. “Green Energy: Taking Root in Alabama.” Wood Bioenergy . Summer 2009, p. 17-20.

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