Ethanol Producers Ask Whether It’s Time for Growth Energy, RFA To Merge

Source: By Jordan Goodwin and Michael Schneider, OPIS • Posted: Wednesday, February 19, 2020

After suffering through nearly two years of tough market conditions and efforts in Washington to weaken the Renewable Fuel Standard (RFS), a number of ethanol producers are asking whether it’s finally time for the industry’s two largest trade groups — Growth Energy and the Renewable Fuels Association (RFA) — to combine operations.

Such a consolidation, the producers said, would save money at a time when the industry is increasingly strapped for cash and could strengthen ethanol’s clout in Washington.

Multiple sources interviewed by OPIS said talks have ramped up in recent months over the possibility of trying to bring the two groups together to cut down on membership dues and other costs.

“I think there is a fair amount of interest among the different industry associations and a number of the different plant members that are in different associations,” said Mark Marquis, CEO of producer Marquis Energy and Growth Energy board member. “I think there is a fair amount of appetite for, ‘Could we be more effective, have a more united voice, a stronger voice? Could we be more cost effective if we could find a way to operate more closely as an industry?’

“I think there is an appetite out there for that.”

RFA was founded in 1981, and Growth Energy was established in 2008. While discussions about the possibility of merging the two organizations have periodically cropped up over the past 10 years, they have not advanced.

Industry sources, however, said that while such conversations have resumed, they could not confirm whether representatives from Growth Energy or RFA were involved. One producer source said the topic has not been discussed with members of either group in any official board meetings or conference calls.

Two sources, who asked not to be identified, confirmed that a group of 20 to 30 producers met last summer in Chicago to talk about whether they should press the two groups to merge. A straw poll taken at the meeting showed the industry was split over a combination, with half favoring it and the other half supporting the current arrangement.

Growth and RFA believe the current arrangement is working and that the two groups have repeatedly and effectively joined forces on key industry initiatives.

“RFA continues to closely collaborate and cooperate with all other trade associations and renewable fuel advocates, and we believe the industry is more unified and better organized today than ever before,” an RFA spokesman told OPIS. “Our recent policy successes — from securing year-round E15 approval to ensuring SREs [small refinery exemptions] are prospectively reallocated — simply would not have been possible without complete solidarity and a consistent message.

“We remain committed to ensuring there is no confusion about the ethanol industry’s goals and priorities, and we continually strive to improve communication and coordination with all partners and allied organizations.”

Growth echoed RFA’s position. “As we saw last fall, we are a force to be reckoned with when we work together, and Growth Energy remains committed to working alongside all of our allies to advance the industry’s priorities,” a spokeswoman said.

Marquis said it’s still unclear how a consolidation — should it happen at all — would occur. But he said there have been talks about the possibility for at least a year.

“I think it is possible in 2020 to have some realities of unification across the ethanol producer industry,” he said. “I don’t know how I would handicap it as far as odds, but I think there is reason to be optimistic that 2020 could be a year of getting stronger and more efficient as an industry.”

While a consolidation could provide cost savings, a number of producers said they believe a combination could give the industry a greater voice in Washington, particularly at a time when the Trump administration has adopted policies — chiefly, a sharp increase in the number of EPA-approved SREs from the Renewable Fuel Standard (RFS) — that has caused values for Renewable Identification Number (RIN) credits to plunge. That issue, however, could go away this year depending on how EPA decides to respond to last month’s ruling from the 10th U.S. Circuit Court of Appeals that has thrown into doubt the agency’s legal authority to grant the waivers.

“I think we as an industry saw last September when we were working with the White House on some of the RFS items that when we were able to align all of the ethanol advocacy groups as well as corn growers and some of the other organizations that fell in line to support agriculture, that’s when we got the best support of our senators,” one producer executive said. “The more alignment we can have allows all of our champions to do their jobs better, and I think it is better for all of us.”

Another producer said the conversations among members aimed at trying to accomplish a merger are not new but could continue to intensify as the industry faces new obstacles from Washington or further financial woes.

“We are always interested in seeing unity in the industry,” the producer said.

“Both organizations have a lot more in common than not, so if it can be determined that there would be greater strength and more impact from coming together and working together closely, that would serve our industry very, very well.”

The push by some in the industry toward a consolidation of Growth and RFA comes as producers endured two of their worst years in 2018 and 2019.

A representative Iowa ethanol plant saw average losses of about $1.6 million in 2019, following estimated losses around $2.2 million the year before as higher production and the continued loss of China as an export market dragged down prices, University of Illinois economist Scott Irwin said this month. Multiple plants were either forced to cut production rates or shut down.

Should the industry margins remain under pressure or should it continue to confront new challenges to the RFS, some producers appear to be convinced that having a single voice in Washington may be the best course.

“I think there is a need to be more efficient and to not have two messages out there that are confusing,” Marquis said. “We don’t want to get too many competing or confusing messages to keep us from being effective in the marketplace and in the political world.”

–Reporting by Jordan Godwin,

–Reporting by Michael Schneider,