Date of Award

8-2004

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Kimberly L. Jensen

Abstract

In 2002, a study of the economic feasibility of producing biodiesel in Tennessee was conducted. As a follow-up to the feasibility study, potential business structures for a biodiesel production facility was compared and information regarding soybean producers' interest and willingness to invest in a New Generation Cooperative (NGC) to produce biodiesel was examined. The similarities and differences between a Traditional Cooperative (TC) and an NGC and between an NGC and a Limited Liability Company (LLC) were investigated from legal and practical perspectives. After evaluating the advantages of an NGC versus the other two business structures, an NGC appeared to be the most suitable business format for farmers to build a soybean biodiesel processing plant in Tennessee. This thesis used data from a mail survey conducted in 2003 and employed probit and tobit models to investigate whether the soybean producers in West Tennessee had enough interest in forming an NGC to produce biodiesel, and if so, how many shares they were willing to invest in the cooperative. The results showed a 74.78 percent participation rate for joining an NGC to produce biodiesel, indicating a considerable interest among Tennessee soybean producers. The participant profile would be a farmer optimistic about the U.S. biodiesel market growth in the next 10 years. The farmer would also have more than 1,000 acres of soybean production, on-farm storage, a net income more than $75,000 from farming per year and a debt rate of $20-$39.99 or $3 $9.99 per $100 of farm assets. The farmer would be of a younger age (i.e. 35), and would not be a current member of any agricultural cooperative, and would have earned at least a four year college degree. Producers of this profile were estimated to have an as high as 99.68 percent probability to join an NGC to produce biodiesel. Among those farmers who were willing to join an NGC to produce biodiesel and purchase the minimal 2,500 shares, or an equivalent of $5,625, they would purchase an average of 4,048 shares, or an equivalent of $9,108, from an NGC. A farmer who would buy more shares in an NGC to produce biodiesel would be optimistic about the U.S. biodiesl market growth in the next decade. This person would also have more than 1,000 acres of soybean, without on-farm storage capacity. The farmer's net income would be above $15,000 from farming per year, with less than 60 percent of the household's income from off-farm sources and without debt for farm assets. The farmer would also have four years of college education or higher. Producers with this profile were estimated to invest as many as 12,028 shares, or an equivalent of $27,063, into an NGC to produce biodiesel. Given a participation rate of 74.78 percent and a purchase of 4,048 shares per farm in the sample, a total of 7,419,984 shares, or an equivalent of $16,694,964 could be financed by the producers from the sample, which represented 82.44 percent of total soybeans and 44.43 percent of total capital needed. If adjusted for the population, a total of 10,577,244 shares which represented 117.52 percent of the total soybean needed, or an equivalent of $23,798,799 which represented 63.34 percent of the total investment needed, could be raised from the equity of an NGC to produce biodiesel.

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