The 1st meeting of the Interim Joint Committee on Agriculture and Natural Resources was held on Wednesday, July 12, 2006, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Jim Gooch Jr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Representatives Jim Gooch Jr, Co-Chair, and Thomas M McKee, Co-Chair; Senators Ernie Harris, Robert J. (Bob) Leeper, Vernie McGaha, Joey Pendleton, and Damon Thayer; Representatives Royce W. Adams, Adrian K. Arnold, James E. Bruce, Dwight D. Butler, Mike Cherry, Hubert Collins, James R. Comer Jr, Howard D. Cornett, W. Milward Dedman Jr, Mike Denham, C. B. Embry Jr, Jimmy Higdon, Charlie Hoffman, Reginald K. Meeks, Brad Montell, Fred Nesler, Don R. Pasley, Marie L. Rader, Rick W. Rand, Steven Rudy, Brandon D. Smith, Jim Stewart III, Tommy Turner, Ken Upchurch, and Susan Westrom.
Guests: Andrew McNeil, Executive Director, Office of Energy Policy; Dr. Steve Riggins, University of Kentucky, Department of Agriculture; Mr. Keith Rogers, Governor’s Office of Agricultural Policy; Commissioner Richie Farmer, Kentucky Department of Agriculture; Mark Farrow, Kentucky Department of Agriculture, and Dr. Wilbur Frye, Kentucky Department of Agriculture.
LRC Staff: Tanya Monsanto, CSA; Lowell Atchley; Biff Baker; Hank Marks; Susan Spoonamore, Committee Assistant, and Clark Baird, Graduate Fellow Intern.
Rep. Gooch thanked the members for their attendance and then Rep. Denham introduced some people in the audience. Sen. Thayer then gave the report of the Horse Farming Subcommittee. He stated that the subcommittee received testimony from the Racing Commission and on the distribution of monies from the breeders incentive fund. The subcommittee also received testimony on efforts to establish a school for jockeys at the Kentucky Horse Park. Rep. Nesler talked about the importance of the quarter horse industry and stated that the value of quarter horses should not be overshadowed by Thoroughbreds. After a motion and a second, the subcommittee report was approved.
Sen. McGaha gave the report of the Rural Issue Subcommittee which received testimony from Mr. Jeff Hall with the Farm Service Agency (FSA). Mr. Hall talked about FSA's national farm loan program and the tobacco buyout. He also talked about reorganization of the agency in Kentucky. After a motion and a second, the subcommittee report was approved.
Then, Sen. Harris gave the report of the Natural Resources Subcommittee. The subcommittee meeting focused on illegal dumping, recycling, and solid waste management in Kentucky. Testimony from the Environmental and Public Protection Cabinet's division of waste management indicated that Kentucky doesn't have high volumes or the needed infrastructure to grow the recycling program. After a motion and a second, the subcommittee report was approved.
Rep. Gooch asked representative from the Office of Energy Policy to give a update on the implementation of House Bill 299, passed during the 2006 General Assembly. Mr. Andrew McNeil gave the presentation. He stated that Kentucky has a series of challenges and then talked about how the demand for petroleum and natural gas has outstripped supply. Mr. McNeil then talked about the "industrialization of Kentucky's energy resources" as a way of meeting energy production in the future. According to Mr. McNeil, "PolyGen" plants will be the way tomorrow's energy plants will be built. He then talked about the role of biodiesel and ethanol production stating these are very important fuel stocks particularly if Kentucky can successfully cultivate switchgrass. Currently the Office of Energy Policy is working with the University of Kentucky on ways to promote alternative fuels. Lastly, Mr. McNeil discussed the development of a "site bank" which would contain a list of places for locating energy production facilities. According to Mr. McNeil the bank would be geographically balanced and contain between 4 to 6 sites.
Rep. Cornett stated that Mr. McNeils remarks were encouraging and positive. He asked about the type of infrastructure needed for a PolyGen plant. Mr. McNeil responded that it would be the same as for any other type of power plant.
Rep. Denham asked where the "break-even" point is for petroleum and why the price for natural gas has not gone down. Mr. McNeil replied that it is roughly $40-$50 per barrel and that he is not certain why the price of natural gas has not decreased.
Rep. Gooch stated that the committee should examined this question, perhaps by finding a national expert to respond to the committee's questions. Then Rep. Gooch commented that the supply of natural gas is increasingly utilized for energy production rather than home heating. Coal prices remain more stable than natural gas and it preferable for energy production.
Rep. McKee thanked the chair and Mr. McNeil for his testimony. He asked is it possible for a farmer to grow switchgrass in Kentucky or will returns be limiting. Mr. McNeil indicated it had promise.
Rep. Embry asked how many years of petroleum does the world have left. Mr. McNeil responded about 20 to 25 years. Other experts cite 75 years. Rep. Embry continued that the limited number of reserves demonstrates the importance of developing alternatives fuel sources.
Rep. Cornett stated that in Eastern Kentucky there are sizable coal reserves but investment is needed in that region. Mr. McNeil responded that in the future, new technologies will drive the industry.
Rep. Smith stated that the world is changing and underdeveloped countries have started to mechanize. People are buying tractors and cars. We need to champion alternative fuels.
Rep. Gooch thanked Mr.McNeil for his presentation and then asked representatives from the Department of Agriculture to give their presentation. Commissioner Richie Farmer discussed the recent passage of a bill that authorized a laboratory for the testing of fuels and pesticides. He explained current gasoline testing procedures and that the program must be closed due to lack of funds.
Rep. Smith asked if KDA examined octane levels in the fuels. Commissioner Farmer replied that there is sufficient personnel to examine stations regularly; however it is impossible to verify octane levels in each and every station. This is why it would be good to have a testing laboratory ourselves.
Sen. Pendleton asked if KDA could determine octane levels in biodiesel or ethanol. Commissioner Farmer replied that it could not be done at the pump. Dr. Frye stated that there is a new research testing procedure to examine blends and hopefully it will be available in the future for biodiesel. Sen. Pendleton responded that it is necessary to determine the examine percentages in blends, particularly if Kentucky ever mandates certain fuel blends.
Rep. McKee asked when the testing laboratory will be open. Dr. Frye replied July 1, 2007, the laboratory will begin operations.
Rep. Meeks asked how many tests can the laboratory perform and will it perform tests for other states. Commissioner Farmer replied yes the laboratory can perform tests for other states and it can handle 6,000 to 8,000 tests. Dr. Frye added that Kentucky is new in this arena and KDA plans on visiting N. Carolina and Maryland to see how they are running their testing laboratories.
Rep. Gooch thanked the commissioner and then introduced Dr. Steve Riggins from the University of Kentucky, Department of Agriculture. Dr. Riggins explained that the next farm bill will impact what states can do in the future in the development of fuels and other agricultural commodities. Traditionally the nation has used agricultural commodities for fuel or feed. Forty-six percent (46%) of agricultural products go to feed beef cattle.
He explained that the government has used various programs to stabilize farm prices and to raise revenue to farmer. This is because crop farmers are not as responsive to price signals as other agricultural markets like beef and hogs. Dr. Riggins explained that as prices rise for corn, some sectors will benefit while others will be hurt. This is the same for countries too. It is because the land for food production has to be taken out for use for fuel development.
Dr. Riggins summarized by stating that alternative fuel markets are a bubble economy. The question is how long the bubble will last. There are distribution problems for ethanol because it must be trucked. The biggest question is how many years are needed for payback on a plant's initial investment. There are new seed varieties and other countries will enter the production market and produce these crops more cheaply. Countries like Brazil or those in the Caribbean can quickly increase production of sugar cane or similar crops for fuel. This would cause prices to drop and negatively implicate returns on investment.
Sen. Harris asked will there be a market for alternative fuels. Dr. Riggins replied yes. The market is dynamic and there are extraordinary profits to be made but it will also lead to conservation and increased production worldwide.
Rep. Gooch asked what percent of the current corn crop is being used to produce ethanol. Dr. Riggins replied for the current year, fourteen percent (14%) is being used. The projection one year ahead is for eighteen percent (18%) and could approach twenty percent (20%).
Rep. Gooch commented that the public would not stand for production levels for food to fall significantly. Dr. Riggins replied that it will also impact farm land availability. Farm land will not be cheap if it is used to produce feedstocks for biofuels.
Rep. Gooch thanked Dr. Riggins for his testimony and then asked Mr. Keith Rogers to update the committee on the role of the Governor's Office of Agricultural Policy (GOAP) in the promotion and investment in alternative fuels. Mr. Rogers described a series of projects financed by the Agricultural Development Board (ADB). Mr. Roger's presentation and materials are filed in the LRC library.
Mr. Rogers agreed with Dr. Riggins testimony that the biofuels market may be a bubble economy, and there is a need to examine payback periods. He then talked about cellulose technologies and the future of switchgrass in fuel production.
Rep. Adrian Arnold asked if switchgrass is produced in bulk and can you mix different types of fuel stocks. Mr. Roger stated yes. It is about 8 ton per acre and you can blend different types such as switchgrass with sawdust.
Rep. Gooch asked if there would be a need to take other commodities out of production to produce switchgrass. Mr. Rogers stated yes. It is a one cutting crop, so other crops would be taken out of production. KDA is going to be examining the issue to find out the specific economies for switchgrass production.
Rep. Gooch thanked Mr. Rogers and the meeting adjourned.