Revisiting the bioindustrial economy

Thursday, March 25, 2021

Where are we at, and what is Ontario's ag's role?

by Jim Algie

In July 2019, Quebec Superior Court Justice Michel Pinsonnault signed off on the distribution of Canadian assets belonging to an insolvent U.S.-based company called BioAmber Inc.

The assets included the patents, processing equipment and real estate of a groundbreaking, industrial plant that opened in Sarnia in 2015. The business was designed to lead the way from petrochemicals toward a new, renewable chemicals industry based partly on raw materials from agriculture.

The judge's order in BioAmber insolvency proceedings identified a long list of creditors with outstanding claims exceeding $63 million, according to court-appointed monitors at PricewaterhouseCoopers (PwC).

The list included four federal government agencies and Ontario's Ministry of Economic Development and Growth, part of a consortium of lenders holding roughly $40 million in company debt. BioAmber incorporated in 2008 in the U.S. state of Delaware and filed for court protection under bankruptcy rules in May 2018.

In the Sarnia plant's third year of operations, it was the world's largest, succinic acid processor with annual capacity of 30,000 tonnes at a capital cost of about $178 million, court documents show.

Company processes used plant sugars to generate chemicals derived traditionally from petroleum and used in a variety of products including plastics, resins, food additives and personal care goods.

With loan support from the Business Development Bank of Canada, Export Development Canada, Farm Credit Canada and Agriculture and Agri-Food Canada, the Sarnia operation led an emerging, "green" industry based on the chemistry of renewable, agricultural crops.

During early phases, the project received strong government support. When then-Agriculture Minister Gerry Ritz announced a $10-million, interest-free loan in 2014, he described his Conservative government's focus "on creating new opportunities for Canadian farmers and businesses to grow and prosper."

BioAmber activity along with separate developments using similar concepts also raised interest among Sarnia-area farmers in potential new markets, not only for traditional crops but also for crop residues such as corn stover and wheat straw. Two farmer-owned co-operatives formed to explore options: Ontario Innovative Sugarbeet Processors Co-operative (OISPC) for sugar beets and the Cellulosic Sugar Producers Co-operative (CSPC) for corn stover and wheat straw.

Both farmer groups have since backed off, but some of the principals remain interested, even enthusiastic, about a future role for agriculture in an expected bioindustrial economy. Former Ontario Sugarbeet Growers' Association chair Mark Lumley, a Lambton County-area cash cropper, spearheaded the formation of the OISPC, which is now essentially inactive.

"It was the cart driving the horse," Lumley tells Better Farming in an interview from his Fairwind Farms operation near Sarnia.

"We were promoting a feedstock and a product that nobody has yet figured out. It's frustrating," he says.

Jim Campbell, general manager of the over-1,000-member, Chatham-based, AGRIS Co-operative was a founding member of the cellulosic sugar group which announced its dissolution in late April 2020. The decision to cease CSPC operations allowed the group to end mounting expenses and pay back original farmer investments.

"We ultimately, with all the volatility around, couldn't find our way into a market niche that suited our scale," Campbell says. "We weren't ready to build something quite large enough to compete at that large commodity end."

The Cellulosic Sugar Producers Co-operative had been working with a London, Ont.-based firm, Comet Bio Inc., with technology for processing crop residues into dextrose in a proposed, multi-million-dollar, Sarnia-area plant. However, market development took longer than expected, Campbell says.

"We found it was better to wind up Cellulosic Sugar as we know it and let the developer continue to see what they can do to develop that upstream market," he says.

BioAmber's failure – a PwC report estimates company losses at about $320 million – burned secured and unsecured creditors both small and large. During the five-year period between May 2013 and March 2018, when BioAmber common shares traded on the New York and Toronto stock exchanges, the company raised more than $350 million in financial markets, PwC says.

When the accounting firm's monitors became involved, BioAmber had been operating at about 25 per cent capacity in a slow-moving market and feeling the competitive effects of relatively cheap petroleum, court filings said. Canadian government agencies were listed among a wide range of other creditors, including Rothschild Inc. of New York ($318,401), Cargill Inc. of Minneapolis ($636,579), and a host of Sarnia-area suppliers and contractors.

During bankruptcy proceedings, a new operator emerged for the former BioAmber facilities, Taiwan-based LCY Biosciences, having picked up plant assets at the bargain price of US$4.3 million (C$5.5 million) in 2018. LCY was subsequently taken over by a major New York venture capital firm, Kohlberg Kravis Roberts & Co. (KKR), which manages assets worth almost $300 billion and investments in over 190 companies internationally.

LCY representatives could not be reached for this article but the company has completed renovations and resumed production of succinic acid, judging by Sarnia-area media reports and by comments from Bioindustrial Innovation Canada (BIC) executive director Sandy Marshall.

BIC is a 13-year-old, Sarnia-based, business accelerator funded by federal, Ontario and municipal governments. It was established to invest in and facilitate the development of "clean, green and sustainable technologies," the organization's website says.

"LCY Biosciences is a Canadian entity and it's owned by an international, Taiwan-based company and they are producing succinic acid at that facility again and they've got some very big plans to build on that," Marshall tells Better Farming in an interview.

A chemical engineer with a 30-year, petrochemical industry background, he was an adviser to the Cellulosic Sugar Producers Co-operative.

Marshall identifies slow – but continuing – progress in the shift to renewables.

"My sense is that, if the economics of the next project are good, then I believe there are producers out there who will come on board and be interested in investing in the project and committing biomass to the project," Marshall says, referring to the bioindustrial future for agriculture.

"Until you get a true market pull that allows markets to grow and dollars to flow and dollars to be made, it's going to be slow," Marshall says. BF

Optimism for renewables remains

Dave Park still looks forward to a time when renewable alternatives to petroleum-derived chemicals will boost demand for crops and related byproducts from southwestern Ontario farms.

President of the short-lived Cellulosic Sugar Producers Co-operative (CSPC), which formally ceased operations in late April 2020, Park is a third-generation, Lambton County-area cash cropper. He and 117 other area farmers signed on in 2016 as paid-up shareholders in a biomass, supply co-operative to serve a proposed, dextrose refinery in Sarnia.

They organized experiments with corn stover and wheat straw to work out techniques for harvest, storage and transportation of the materials. Altogether, co-op members made commitments to supply biomass from 30,000 acres for the proposed $70-million plant.

A 2019 decision by refinery developers Comet Bio, of London, Ont., to put a hold on Sarnia plans forced existential decisions at CSPC. Rather than incur interim costs, CSPC board members decided to refund member investments and wind up the operation.

Decisions at Comet Bio and CSPC followed the spectacular, financial collapse of BioAmber Inc. BioAmber developed technology to process corn sugar into succinic acid, a dicarboxylic acid used in a variety of basic chemical formulations.

The company built and began operating a $178-million plant in Sarnia with an annual capacity of 30,000 tonnes. But the May 2018 insolvency of BioAmber ended plant operations and over-shadowed some similar Sarnia-area developments.

"It was the same market space," Park tells Better Farming when asked about the impact of BioAmber's collapse on his co-operative's plans. "And then all your partners in that project, seeing that happen – I don't know how you can't be painted somewhat with the same brush even though the projects weren't the same."

Nevertheless, Park and some other agricultural leaders remain interested in a bioindustrial connection. AGRIS Co-operative CEO Jim Campbell, whose over-1,000-member Chatham- based co-operative provided loans and administrative support for the cellulosic group, says new uses for corn stover would help farmers manage higher stover levels that have risen in recent years along with increasing corn yields.

"The AGRIS board has always looked at ventures that would support farmers, especially farmer-owned entities," Campbell says. "We did discover a technology that would … economically produce sugars, specifically dextrose, from corn stover," he says.

"We're there and ready to reorganize as a supply channel partner" when Comet Bio or some other refinery operator is ready to proceed, Campbell says.

It helps that the recent election of U.S. President Joe Biden indicates a potential U.S. policy shift in favour of renewables. At the same time, Ontario and Canadian governments have begun following through with new, higher standards for ethanol content in domestic transportation fuels.

"I think in the green economy, agriculture has a role to play," Park says over the phone from his Sarnia-area office. "A little more market readiness for a product that a biorefinery is going to produce would certainly ease a lot of the risk.

"The whole experience from my perspective was a good experience," Park says.

Mark Lumley, former Ontario Sugarbeet Growers' Association president, likes the idea of new, industrial markets for his produce so well that he and a group of partners actually bid on BioAmber assets during court-ordered liquidation of the insolvent company.

Lumley and his partners lost out ultimately on the acquisition to Taiwan-based LCY Biosciences, which was acquired, in turn, in a partnership transaction with the New York-based venture capital firm, Kohlberg Kravis Roberts & Co.

In September 2019, LCY completed plant refurbishments and resumed succinic acid production.

Lumley still thinks it makes sense for southwestern Ontario producers to "grow, harvest, deliver and process" suitable feedstocks for biorefining industries in Sarnia.

"You can get carbon out of the ground or you can grow it," Lumley says, referring to the essential difference between petrochemicals and renewables.

"We've maybe started moving away from petrochemicals and fossil fuels toward more green energy-derived carbon," he says of recent policy shifts in the U.S. and Canada.

"If that starts moving again, with incentives, that would push this market to be looking for us for feedstock instead of petrochemicals," Lumley says.

"The framework's there. It's been contemplated, studied, worked out. Now we need a market," he says.

Kevin Norton, CEO and COO of Integrated Grain Processors Co-operative Inc. (IGPC Ethanol Inc.) sees recent policy developments supporting higher ethanol content in North America's transportation fuel supplies as "absolutely positive" both for his co-operative's Aylmer-based, ethanol refinery and for the bioeconomy generally. Norton is a former Canadian Forces naval engineer and co-founder of the Hamilton-based, biodiesel manufacturer, BIOX.

Norton oversees operations at IGPC's 13-year-old refinery which doubled annual capacity three years ago in a $120-million expansion to generate over 350 million litres of fuel grade ethanol and 340,000 tonnes of distillers grains used typically in livestock feeds. IGPC's 650 shareholders and nine-member board of directors include farmers and investors with a variety of agribusiness interests.

Ethanol production is relatively well established in Ontario and consumes about 30 per cent of Ontario's corn crop, Norton says. But he also has some sympathy for business problems facing high-tech, bioindustrial start-ups.

"Being the first one is a very challenging marketplace to begin with," Norton tells Better Farming. "These are challenging technologies; they require a lot of capital and there is some uncertainty because everything is new."

His own BIOX startup merged eventually with a Boston-based group of biorefiners now operating as World Energy. With six locations, including Hamilton, annual production of 660,000 tonnes and a new effort to market renewable jet fuels, World Energy claims to be among North America's largest biodiesel suppliers.

"The challenging thing we had at BIOX – I mean we had a fantastic technology, a fantastic company, but the market developed faster in the United States than what happened in Canada," Norton says. "We got ahead of the legislation, we got ahead of the policy and the programs."

"It's a challenge trying to put all these things together," Norton says. BF