Ed Lane: When and why did you come to Kentucky?
Pearse Lyons: My background is in brewing. My Ph.D. is in yeast fermentation, and I studied at the British School of Malting, which is in the University of Birmingham in England. I believe I was the first Irishman to ever formally study and get a master’s degree in brewing. This is especially interesting because neither my mum nor dad ever had a beer or an alcoholic drink in their life. I worked as a distiller for Irish distillery Gems Whisky. The company hired me to come to Kentucky and develop a market within the bourbon industry.
When I first visited potential Kentucky clients, it became obvious to me that there were several things my company could do to improve their process. My new business efforts were going out to distillers and breweries and helping them, based on what I knew.
EL: Why did you elect to stay in Kentucky?
PL: I could see there was real opportunity in Kentucky, and I decided to form my own renewal energy company. In 1981, I published a textbook titled A Step to Energy Independence. This is the first textbook that Alltech published in this country. The book discussed how to use cellulose and corn to make alcohol and reduce the U.S.’s dependence on imported oil. That concept was the basis of my new business in 1980. I was way ahead of my time.
The problem in the early days was no support from the oil companies. But every mom and pop wanted to get into gasohol, and one of my jobs was to educate them on this. It’s interesting that 27 years later, I am traveling around the state of Kentucky and telling business owners and investors how they can make ethanol from cellulose and corn.
I also decided to diversify Alltech because the energy market could be problematic. For that reason, our company also started to develop materials and ingredients based on yeast that would help improve animal performance and nutrition.
EL: Recently you proposed creating a biorefinery in rural Kentucky that would convert cellulose into ethanol.
PL: Yes. I don’t just see one, but perhaps six or seven biorefineries. Large ethanol plants would gobble a lot of cellulose and corn. The plants have to be sustainable, and the sources of low-density cellulose material and agricultural products should not be too far away. The concept is to have a small unit that takes about 100,000 tons of grain. About four million tons are grown in the state.
To the grain, we would add a certain percentage of cellulose – as much as we know how to efficiently break down. The conversion of cellulose and grain to ethanol creates a byproduct that is used for nutrient-enhanced animal feed.
The byproducts provide an opportunity to address some of the other challenges Kentucky has. For example, Kentucky imports $250 million worth of milk every year, and we call ourselves an agricultural state. That’s ridiculous. The state used to have 200,000 dairy cows and now it doesn’t have 95,000 cows.
Milk is a wonderful opportunity for our state. The $250 million deficiency can be reversed and investment would be attracted into rural Kentucky. One cow requires an investment of about $7,500. Using the biorefinery byproducts for animal nutrition will attract agribusiness capital investment to the rural areas of Kentucky.
One cow produces – if we collect it – enough methane from the manure to drive a car 12,000 miles. All of these renewable-energy options become possible because Alltech knows animal nutrition and how to create ethanol. Alltech has been able to marry the two together.
Kentucky is sixth or seventh in terms of raising beef in the United States, but there are no packinghouses in the state. Kroger has worked with Alltech. We’ve grown some meat for them, and what they love about it is they can have the “Kentucky Proud” label.
The biorefineries would convert cellulose and grain to ethanol. The byproducts (fermented grains and cellulose, carbon dioxide) would provide nutrition for growing cows, poultry, free-range steers, aquaculture and algae hydroponics. Algae grown at the biorefinery could produce up to 5,000 gallons of biofuel per acre each year; photosynthesis would utilize excess carbon dioxide.
EL: Is the new energy legislation passed in special session by the Kentucky General Assembly applicable to your biorefinery concept?
PL: Yes, I believe it is. I anticipate the bill is quite open to technology like this, and the new state incentives could help us. The other thing that is going to help is that the U.S. Department of Energy is very interested in cellulose-to-ethanol conversion, and Alltech has applied for a major grant to commercialize this process.
EL: What is the government’s target for ethanol production?
PL: The U.S. government has set the target at 35 billion gallons of ethanol by 2017. If one ton of corn can be converted to 100 gallons, it will require 350 million tons of corn (14 billion bushels) to create 35 billion gallons of ethanol. The United States just had a record harvest of 14 billion bushels, so the 2017 ethanol target would require every single gram of grain now produced in the U.S.
The 35 billion gallon goal is sustainable only using cellulose – which is wood waste products or anything your digestive system can’t break down – to create 21 billion of the 35 billion gallon ethanol target. Alltech believes it can approach the government’s target. Alltech has the technology, and it can apply that technology in conjunction with other technology it has created.
EL: Why is cellulose important?
PL: In the 1980s, corn was $2 a bushel. It was $2 a bushel up to 18 months ago. Now it’s $4-$5 a bushel. The price has increased because of the higher demand for corn to produce ethanol. We have to identify organic materials other than corn from which to create ethanol. Cellulose (wood chips, leaves, corn husks, stalks, etc.) is one of those things. If we could convert all the waste cellulose to ethanol, the United States would probably be able to replace 60 percent of the oil it imports.
EL: How do you recruit top employees to Alltech?
PL: Alltech does things in a totally different way than its competitors do. Alltech hires on a young adult and lets him or her work here and earn master’s and Ph.D. degrees at the university. Alltech has been doing this for years and probably has 40 to 50 graduates globally who have come through Alltech’s system.
EL: Does Alltech use a consultant sales approach whereby its sales staff educates clients about the benefits of the company’s products?
PL: Our sales approach has been one of education. That enables our sales team to identify the problem and come up with a solution. Of our 400 salesmen, 100 are veterinarians, so they can walk the walk and talk the talk with the vets and farmers. Another 90-plus have Ph.Ds in nutrition. The rest have master’s degrees.
Most of our representatives have a technical background. Their target clients are the veterinarian supporting the farmer, the nutritionist formulating feed at the feed company for the farmer, and the university folks who are doing research on animals.
EL: What is the benefit of using Alltech products for animal production?
PL: What happens in our bodies is fermentation. The GI tract is the largest organ in our body by far, and it’s the only organ that has to work in non-sterile conditions. In fermentation, the bugs do the work for you. Using what I knew about yeast, it struck me that we can actually improve animal performance by adding a natural strain of yeast to the digestive process. For example, the dairy cow is a walking, living fermenter, but it’s an unbalanced fermenter. Yeast likes oxygen and sugar, so why not put yeast into this unbalanced fermenter? And when you do, it becomes balanced.
All of Alltech’s materials are fed to the animal, either directly as a supplement or put into the feed that is fed to the animal. They receive the supplement consistently when it is added to the feed. When it gets into the animal’s GI tract, it activates and helps improve the animal’s digestion, health and nutrition.
EL: Can Alltech’s technology also be applied to humans?
PL: It’s more difficult, believe it or not, to get your product accepted on the animal side; the regulations are much more rigid.
On the human side, individuals have to be convinced one by one. When Alltech convinces an animal nutritionist, it’s convincing 10,000 cows or maybe a million birds.
EL: Why is Alltech participating in the 2010 FEI World Equestrian Games?
PL: First of all, I would like to say [that] Alltech is not talking credit for bringing the games to America. I was not part of the team; I was not an adviser. Whomever recruited the games – Gov. Fletcher, Jim Host, the team, George Ward, Randy Fiveash – they get the credit.
(Former-World Games Foundation Chairman) Jim Host visited and told me what the World Games were trying to do. Frankly, it just made sense to me. A local Kentucky company involved in animal agriculture and performance seemed to be a good sponsor for the World Games.
So I thought about it and I said, “Jim, Alltech will do something, no problem.” He gave me the contract the following day.
I was at a state dinner in Frankfort, and I had decided Alltech was not going to be a sponsor – it was going to be the title sponsor. I stood up at the state dinner and announced Alltech was prepared to do the $10 million underwriting to be the title sponsor. They were shocked. I don’t want to say the decision was a spur-of-the-moment one, because it wasn’t. It was just logical to me. The title sponsorship was an incredible opportunity.
Mercedes, McDonalds, the Kentucky Derby are all super brands. We can make Kentucky and Alltech super brands by being associated with a major international event like the FEI World Equestrian Games. We intend to work together with the World Games Foundation to make this the most incredible event the state has ever seen.
EL: What is the major benefit of the title sponsorship to Alltech?
PL: Nutritional ingredients for the horses are a small portion of our business. Alltech’s total business for horses might be $2-3 million annually. So we are not specifically targeting equine nutrition. The FEI World Games gives Alltech a global position. More importantly, it makes Alltech a household word. It elevates our company to a super brand status, and we are now dealing at a level Alltech has have never dealt with before. It’s about branding.
EL: How has Alltech been able to create an international brand?
PL: There hasn’t been a demand for our products worldwide. Alltech has learned it must market its products through education. So what Alltech does is create a market where there wasn’t one. Instead of using an antibiotic, Alltech has been saying “Don’t use an antibiotic. Use a non-antibiotic – a pro-biotic.” Using an antibiotic will kill microorganisms – the pathogens as well as the benevolent microorganisms. Antibiotics typically kill both. After using antibiotics, the right microorganisms have to be re-established in the GI tract.
What Alltech products do on the animal side is maintain the right microorganisms on one hand and eliminate pathogens by binding to and eliminating them. The benefit is the gastro side is working better. Cows are producing more milk, beef animals are gaining more weight, chickens are going to market at 42 days not 43 days, sows are delivering more baby pigs, and so on and so forth. Alltech focuses on the health of the animal and does so naturally. Each and every product Alltech has focuses on maintaining animal health.
EL: What was the most difficult aspect of developing Alltech?
PL: Because Alltech is dealing with a skeptical audience, it has to conduct research on its products. We carry out studies at the University of Kentucky, University of Nebraska or any other recognized university in that market area to demonstrate that Alltech’s products work. We publish product research. Each year Alltech puts out a textbook for its annual worldwide symposium held in Lexington and has done so for the past 20 to 25 years.
EL: Where you ever concerned about going out of business?
PL: Money is always tight; every single year funds have been tight, and the same is true today. Alltech has always been very careful, almost frugal.
When you get bigger, the savings can become much more significant. A friend of mine formed a company in India. I trained her years ago. I happened to see that her yield on the dollar was 35 percent and Alltech’s was only 7 percent. I set Alltech’s target at 35 percent and asked all the departments to come back and tell me how they could do it. We’ve tripled our profitability in about 18 months, and the banks say they’ve never seen anything like that. If we can increase our sales by 20 percent – which we can – and increase our cost by only 5 percent, we can add another 60 points on the bottom line.
When you live and love your business and you are smart about your business and you have an incredible team around you, then you are going to be successful. One of the reasons Alltech has an incredible team is that our management communicates well with them.
EL: Where do you see Alltech in 15 years?
PL: Alltech’s plan is simply to reach $1 billion in sales by 2010. Today, Alltech does about $400 million. For the last 30 years, sales have increased by 20 percent annually. If you increase $400 million by 20 percent annually through 2010, Alltech will achieve $980 million sales doing only what we are doing today and only doing what we’ve done all those years before. Of course, there’s competition. But Alltech is now the largest in its business segment, and I suspect that it is also the hardest working company.