News: CJ Exclusives

Golden Leaf Official’s Business, Brother Linked to $10 Million Grant

Two brothers, one the chairman of Golden LEAF and the other a director of a grain growers cooperative, also own businesses associated with a $10 million foundation grant to build a soybean-processing facility and a related biodiesel fuel plant.

Under the plan, announced by Golden LEAF on Aug. 14, 2002, the North Carolina Grain Growers Cooperative would operate the facilities, estimated to cost about $40 million.

Plans for the operations apparently were worked out by Lawrence Davenport — chairman of Golden LEAF, the organization that receives half of North Carolina’s funds from the 1998 Tobacco Settlement — and his brother Charles, who was the founding vice chairman of the growers co-op and who still sits on its board of directors.

Competition with the co-op’s biodiesel project was thwarted Nov. 8 when Golden LEAF turned down another man’s request for $215,000 to help launch a $2 million biodiesel fuel production plant. The co-op’s soybean plant would also be competing with two existing North Carolina companies that process soybeans.

Conflict of interest

In order to “develop value-added market opportunities for soybean and grain farmers,” the grain growers co-op was formed Sept. 29, 1999 by eight members of the board of directors of the North Carolina Soybean Producers Association. Charles S. Davenport of Greenville became vice chairman of the organization. According to corporation documents filed with the N.C. Secretary of State’s office, Charles Davenport is still the registered agent for the co-op, and the principal office for the organization is 591 Hwy 264 East in Greenville.

That address is also the address for J. P. Davenport and Son. Charles Davenport is also vice president of J. P. Davenport and Son, a Greenville-based agribusiness and farming company. He is a past president of the soybean association and is also one of only two North Carolina members of the United Soybean Board, a national industry association committed to expanding soybean markets.

His brother, S. Lawrence Davenport, is president of J. P. Davenport and Son. Lawrence Davenport was appointed to the initial board of Golden LEAF as one of House Speaker Jim Black’s five appointments. The total board is comprised of 15 members — five by the speaker, five by State Senate President Pro Tem Marc Basnight, and five by Gov. Mike Easley.

When the growers co-op was established, the organization expected to be primarily financed by Golden LEAF. In a September 2002 newsletter, growers co-op Chairman Earl Hendrix wrote, “The Golden LEAF Foundation has been responsible for the majority of our start-up funding; and without this support our Cooperative would not be in a position to move ahead with current projects, particularly two very special projects (Biodiesel and Ethanol) that offer tremendous opportunity for producers and the communities in our state.”

Golden Leaf was officially formed Oct. 22, 1999 — three weeks after the growers co-op. Since that time, Golden LEAF has made three rounds of grants. Through the N.C. Agricultural Foundation, the co-op has received grants in all three years.

A grant application dated Jan. 17, 2001 outlined a three-year plan of requests to Golden LEAF. It listed seven specific goals, but had no mention of a soybean oil-processing facility or a biodiesel production facility.

The growers co-op has received five grants for total of $1,114, 250 from Golden LEAF. Ia color sorter for n 2000 it received $150,000 for processing food-grade soybeans and $250,000 for organization startup funds. received $300,000 to support a range of activities, In 2001 it including research and $114,250 to expand a color sorting facility that was set up in Zebulon, N.C. In 2002 it received a $300,000 grant to provide a third year of funding for various marketing and research activities.

Unfair Competition

Biodiesel, a clean-burning fuel for diesel engines, is produced from renewable resources, such as soybean or corn oil. It can be used as a pure product, but is typically blended with standard diesel fuel for a final product composed of 20 percent biodiesel and 80 percent petroleum diesel. Studies have shown that regulated emissions are significantly lower. Among the other benefits are that no engine modifications are required even when using 100 percent biodiesel.

No companies produce biodiesel in North Carolina, but fuel brokers handle it and users include the N.C. Department of Transportation and military bases.

Charles Jackson, owner of Filter Specialty, Inc., a used-oil and antifreeze-recycling and processing company in Sampson County, in 2000 began researching the production of biodiesel fuel as a potential addition to his existing business. In early 2001 he received approval for the U.S. Department of Agriculture’s bioenergy program. His company is the only one in North Carolina that has received approval, which is necessary to receive the federal subsidies that make the production of biodiesel fuel economically feasible. In February 2001 he began corresponding with the N. C. Department of Revenue’s Fuels Tax Division on rules and permits that would be necessary to transport the product.

On June 4, 2002 he hired Frazier, Barnes & Associates, a private consulting firm from Memphis, Tenn., which provides technical and marketing services to the agricultural industry. He paid the company $10,000 for a feasibility study.

On July 24, 2002 he received the completed study. The plan was to build a $2 million, 1.6-million-gallon-per-year plant to be operating in the first quarter of 2003. He already had a site and building and planned to commit a substantial amount of his own money.

Jackson needed help to get the project moving, so he said he discussed his project with the North Carolina Agricultural Foundation, a nonprofit affiliated with N.C. State University.

The foundation thought enough of his project to apply for a grant from Golden LEAF for $215,000 to subsidize Jackson’s project. The grant was submitted Aug. 2, 2002. Jackson told CJ he was unaware that the growers co-op had made a serious effort to enter biodiesel production until he read it in a newspaper Aug. 15. “I was upset that for a project this big, Golden LEAF had not consulted me as the only North Carolina representative on the National Biodiesel Board, and I believe, the only one in North Carolina with an EPA license to produce biodiesel.” He told CJ that he immediately called Lawrence Davenport to ask why he had not been consulted. Jackson said Davenport told him to join the growers co-op and work with them. Jackson explained to Davenport that he already had the land, building, and permits and that his plans were far ahead of the co-op’s. Davenport indicated there were no other options other than for Jackson to work with the co-op.

Jackson said Davenport told him that the co-op was not informed about the $10 million award until 10 minutes before the Raleigh press conference. Jackson told CJ that he found that hard to believe, since he later saw a newspaper photo and noticed that several co-op board members were at the event.

Jackson told CJ that even though the co-op project could make hisplan unworkable, he held out hope that he would still get the $215,000 from Golden LEAF. In November 2002, when Golden LEAF announced the 2002 awards, Jackson’s was not among them.

The Grain Grower’s Biodiesel Proposal

CJ asked Golden LEAF officials for copies of the plan of the proposal, business plan, and all documents related to the decision to give $10 million to the growers co-op. The officials said they would turn over the documents, but as of press time, the documents had not arrived.

CJ did obtain documents from another source. Among the documents was a July 8, 2002 paper entitled “Identity-Preserved Soybean Processing Technology for the North Carolina Grain Growers Cooperative.” Frazier, Barnes & Associates, the same consulting firm that had worked for Jackson, produced it. The paper addressed only the feasibility of the co-op owning its own soybean processing plant and did not address the production of biodiesel fuel.

The author, Rod Frazier, told CJ that his firm did not have a conflict of interest in working for both Jackson and the co-op because they were distinct projects. To make sure there was not a conflict of interest, Frazier said he informed each party about the consulting work he was doing for the other.

But to supplement the Frazier, Barnes study, the co-op hired the Independent Biodiesel Feasibility Group to perform the additional economic analysis papers to take the co-op soybean oil and enter the biodiesel production business. IBFG is a consulting group based in Missouri dedicated to the commercialization of biodiesel products.

Not only would the growers co-op be competing with Jackson’s proposed biodiesel plant, the soybean processing facility would also competing with two existing businesses — a Cargill plant in Fayetteville and a Carolina Soy Products plant in Warsaw.

Biodiesel market is risky

Cargill, which has plants in Fayetteville and Raleigh, and Carolina Soy Products, which has a plant in Warsaw, produce soybean oil from raw soybeans. Crushed soybeans yield oil and meal, which is used for feed. Companies use the oil to make salad dressing and vegetable oil. It is also the preferred oil for producing biodiesel fuel. The three North Carolina plants produce a total of about 100 million gallons of soybean oil, but only half of that is refined oil, a necessary requirement for biodiesel. Jackson’s plant would require 1.6 million gallons of the 50 million currently available.

The market for biodiesel fuel depends heavily on the price of soybean oil and the value of federal government subsidies to producers. Biodiesel experts told CJ that the price of a 20 percent mix of biodiesel fuel varies between 10 and 25 cents more per gallon than standard diesel fuel.

An August 2002 economic analysis prepared by IBFG for the growers co-op said, “Biodiesel pricing remains one of the most elusive data points to predict. Currently there is no reporting of biodiesel pricing; therefore estimating biodiesel price for the purposes of this analysis is an educated guess at best. Biodiesel price also has a significant impact on the economic feasibility of the biodiesel operation and the overall plant.”

While biodiesel proponents expect that Congress will approve continued subsidies for the production of biodiesel fuels, the terms, conditions, and value of the any subsidy has not been determined.

Davenport’s Response

Lawrence Davenport toldCJ that he informed other Golden LEAF board members about his brother’s association with the growers co-op prior to the award of the first grant. When asked why Golden LEAF turned down Jackson’s request, he said, “We chose to fund a big project over a little project. We want to help as many people as possible, not just one man who is just out for himself.” Davenport also acknowledged that the growers co-op does not have a finalized business plan, nor has the organization secured the remaining funds for the estimated $40 million project.

Carrington is associate publisher of Carolina Journal.