ECONOMIC IMPACTS OF ETHANOL
PRODUCTION FROM CORN STOVER IN
SELECTED MIDWESTERN STATES
Burton C. English, R. Jamey Menard, Daniel G.
De La Torre Ugarte, and Marie E. Walsh
Partially Funded by Oak Ridge National Laboratory Contract Number:
4500010956.
Professor, Research Associate, Research Associate Professor, and
Adjunct Professor, Department of Agricultural Economic, University
of Tennessee.
Why Ethanol??
• Net Farm Income
• Agricultural Resource Rigidity
• Oil Prices
• Rural Development
Net Farm Income
• Net farm income for 2004 is forecasted at
$47.6 billion, a 13.3 percent decrease from
2003’s level of $54.9 billion.
• The ten year average (1994-2003) for net
farm income was $48.2 billion.
• Income variation for this ten year average
was $6.7 billion.
• From 1994 to 2003, net farm income ranged
from a low of $35.3 billion (2002) to a high of
$57.8 billion (1996).
Agricultural Resource
Rigidity
• Unlike other non-farm economic sectors, the
agricultural sector’s resources are not very
mobile.
– Once the resources are employed by the
agricultural sector they tend to remain
there.
– United States farmers use all of their
productive capacity regardless of expected
commodity prices.
• The land usually remains in agriculture production
even though a farmer quits.
• Historically, agriculture has been plagued by
surpluses and low commodity prices (Ray et al.,
2003).
•“
Agricultural Resource
Rigidity
“Other industries would throttle
back production and/or decrease
productive capacity” (Ray, p. 39).
•“
Oil Prices
• Recent world oil prices have increased from
$22.68 to $33.40 per barrel, a 47.3% increase,
from January 2000 to May 2004 (Department
of Energy, 2004d).
• According to the Department of Energy’s
Energy Information Administration, the
average retail price (May 2004) for regular
unleaded gasoline is $2.01/gallon.
• Adjusted for inflation, gasoline prices have not
been in this range since the fall of 1985.
• Lack of stability in oil prices contributes
greatly to the difficulty for consumers and
businesses to plan and budget (Department of
Energy, 2004c).
Rural Development
• Public pressure has increased toward
establishing value-added operations in the
rural areas.
• Interest in economic development of rural
areas has traditionally focused on
manufacturing opportunities and has
neglected agricultural value-added prospects.
• Rural communities either shipped raw
commodities out or fed the raw agricultural
commodities and shipped livestock from the
region.
• Recent contributions to incomes and
employment in rural areas have occurred
through the development of an ethanol
industry relying on agricultural feedstocks.
Rural Development?
• In a study conducted for NREL, several reports were
reviewed that analyzed the economic impacts of fuel
ethanol. In this analysis, if was found that “These
assessments all predicted substantial economic benefits
from increased production of fuel ethanol” (Energetics,
Inc.).
• A 1993 United States Department of Agriculture study -increasing ethanol production to 2 billion gallons would
create 28,000 new jobs.
• The National Corn Growers Association -- expansion of
the ethanol industry through 2000 would create over
273,000 jobs throughout the United States.
• The U.S. General Accounting Office -- an increase of
ethanol production to the 2.0-5.0 billion gallon level
would increase net farm income by 1.3 percent per year
or an average of $415 million over the 8-year period of
GAO's analysis.
The Process?
• Biomass feedstocks, such as corn fiber (hull
from a kernel of corn), corn stover (residue left
from grain harvest), bagasse (residue left from
the crushed stalks of sugar cane), and rice
straw, contain cellulose, which can be
converted to sugars that are then fermented to
ethanol. New technologies are in process of
development that will convert corn stover to
ethanol more efficiently.
• The agricultural producer harvests the corn
and windrows the residues. Following the
harvest, the residues are baled, wrapped in a
plastic mesh, and transported to the edge of
the field.
The Process
• Once at the fields edge, the stover is
transported to the ethanol production
facility in such a manner that there is
10 days of inventory kept at the ethanol
plant.
• This process creates a byproduct for the
farmers to market.
The Process
• The total costs of harvesting and transporting
the crop, plus an incentive payment, will be
required to entice the producer’s
participation.
• The cost of harvesting and transporting the
residue depends on the per acre residue yield
and the distance to be transported.
• This does not remove resources from
agriculture, but is the first step toward
establishing a dedicated crop for ethanol
The Market
• Ethanol demand is expected to increase. In
2002, U.S. ethanol production, with corn as the
primary feedstock, was 139,000 barrels per
day.
• The Department of Energy’s Energy
Information Administration projects
production to double by 2025.
• About 27 percent of the growth will occur from
conversion of cellulosic biomass (i.e., stover).
• In the high renewable case, all the projected
growth is from cellulose -- a result of more
rapid improvement in the technology
(Department of Energy).
Objectives
• The objective of this research are to provide
estimates of economic impacts if ethanol
plants are established in the current corn
producing states of the United States.
• The economic impact indicators used in the
analysis include:
– total industry output,
– employment, and
– value-added.
• Analysis includes both the impacts that occur
with the first most likely plant is constructed
and in operation and when all feasible plants
are in operation.
Midwestern States Examined
• Illinois
• Indiana
• Iowa
• Kansas
• Minnesota
• Missouri
• Nebraska
• Ohio
• South Dakota
• Wisconsin
Midwestern States Examined:
Corn Density
Minnesota
Corn Acreage Dens ity
(Percentage)
60 to 80
40 to 60
20 to 40
5 to 20
0 to 5
Wisconsin
South Dakota
Iowa
Nebraska
Indiana
Illinois
Kansas
Missouri
Ohio
National Renewable
Energy Lab Report on
Lignocellulosic Conversion
Methods
Plant
Construction
Phase
National Renewable
Energy Lab Spreadsheet on
Alternative Plant Size
Plant
Operation
Phase
IMPLAN
Transportation
Phase
Production
Agriculture
Impact Phase
Oak Ridge National Lab
Cost of Harvesting
ORIBAS
Estimates on
feedstock and
transportation
costs
POLYSYS
Estimates on
Available Residues
POLYSYS
• The Policy Analysis System (POLYSYS)
modeling framework was developed to
simulate changes in policy, economic, or
resource conditions, and estimate the
resulting impacts for the U.S.
agricultural sector.
• This model has been presented in an
earlier session during this conference.
POLYSYS
• Using the corn yields and acres for 2005 as
estimated by POLYSYS, quantities of corn
stover available as feedstocks for ethanol
production are estimated for each county in
the ten states.
• Corn acres classified as highly erosive (e.g.,
an erosion index of 8 or higher) are excluded
from consideration (Department of
Agriculture, 2004b).
POLYSYS
• Assumed quantities required to remain to
maintain soil quality are subtracted from the
total quantities of stover produced – a
maximum of 45 percent of the residues
generated are allowed to be collected
(Lightle).
• In using the model in this manner, the
assumption that is made is that farmers plant
corn for the revenue gained from corn and do
not incorporate the revenue generated from
selling residues in their decision process.
ORIBAS
• ORIBAS. The Oak Ridge Integrated
Bioenergy Analysis System
– a GIS-based transportation model.
– includes a complete road network for each
state.
– are evenly distributed across each county.
– locates facilities based on delivered
feedstock costs with the first plant having
the lowest delivered costs for quantities
sufficient to meet its feedstock demands.
ORIBAS
• Subsequent facilities have increasing
costs as they must either purchase
feedstocks from areas that are more
expensive and/or transport feedstocks
farther to satisfy their feedstock needs.
• The cost of delivering residues is
estimated along with the location of the
stover.
IMPLAN
Agricultural
Industrial
Complex
Miscellaneous Plastic
Products
Farm Machinery
Motor Freight Transport
Automobile Dealers and
Service Stations
Miscellaneous Repair
Employee Compensation
Non land Capital Costs
Other Property Income
Plant
Construction
Building
Construction Machinery
Banking
Electric Utilities
Corn
Stover
Transportation
Sector
Plant
Operation
Motor Freight
Transport and
Warehousing
Inorganic Chemicals
Lime
Nitrogenous and Phosphatic
Fertilizers
Wet Corn Milling
Petroleum Refining
Water Supply and Sewerage
Systems
Sanitary Services and Steam
Supply
Electrical Services
Maintenance and Repair
facilities
Insurance
Accounting Services
Employee Compensation
Indirect Business Taxes
Two Plant Sizes Studied
1.90
1.70
$/gallon
1.50
1.30
1.10
0.90
0.70
0.50
0
2000
4000
6000
Plant Size (MT/day)
8000
10000
Ethanol Prices
• Analysis conducted using 3 different Ethanol
Prices $1.15, $1.25, and $1.35 per gallon.
• Based on a prespecified ethanol price, the
amount the plant could pay for their
feedstocks was determined.
• Using the feedstock price, the number and
location of plants that could supply ethanol
was determined.
Results
Ethanol Break-even Corn Stover 2005 Prices.
Ethanol Price
Plant Size
$1.15/gallon
$1.25/gallon
$1.35/gallon
$ per metric ton dry matter
1,000
18.75
27.60
36.60
2,000
37.35
46.20
55.14
Results
Economic Impact of the Initial Ethanol Plant by State (million dollars).
Agriculture
State
Direct
Total
Transportation
Direct
Total
Operating
Direct
Total
Total
Direct
Total
2010 2,000 MT per Day Ethanol Facility
Illinois
13.13
27.24
8.57
21.88
74.1
158.4
95.80
207.52
Indiana
14.04
26.49
9.01
20.90
74.1
135.1
97.15
182.50
Iowa
12.85
23.84
8.42
17.63
74.1
125
95.37
166.46
Nebraska
12.95
25.08
8.10
18.62
74.1
130
95.15
173.70
Ohio
14.16
26.77
11.13
25.19
74.1
135.3
99.39
187.26
Results
Number of Projected Ethanol Plants by State by Alternative.
Ethanol Price =$ 1.15
State
1,000
MT/Day
2,000
MT/Day
Ethanol Price = $1.25
Ethanol Price = $1.35
1,000
MT/Day
1,000
MT/Day
2,000
MT/Day
2,000
MT/Day
Number of feasible plants
Iowa
0
13
1
16
27
18
Illinois
0
11
0
13
23
15
Indiana
0
4
0
6
10
7
Kansas
0
0
0
0
2
1
Minnesota
0
7
0
10
17
10
Missouri
0
0
0
0
2
2
Nebraska
0
9
3
10
18
11
Ohio
0
1
0
3
4
3
S. Dakota
0
1
0
1
1
1
Wisconsin
0
1
0
3
4
4
0
47
4
62
108
72
Total
Results
Economic Impacts of a Mature Ethanol Industry with 1,000 or 2,000 MT/Day Plants
Assuming an Ethanol Price of $1.35/Gallon.
1,000 MT/Day Plant
State
Direct
Indirect
Induced
2,000 MT/Day Plant
Total
Direct
Indirect
Induced
Total
Million dollars
Illinois
$1,274
$827
$664
$2,765
$1,485
$954
$796
$3,234
Indiana
$3,170
$4,994
$7,493
$15,657
$4,309
$5,933
$9,130
$19,372
$242
$406
$404
$1,052
$303
$469
$486
$1,258
$0
$0
$0
$0
$0
$0
$0
$0
$564
$288
$213
$1,065
$711
$359
$279
$1,349
$1,704
$2,093
$2,850
$6,647
$2,487
$2,687
$3,801
$8,975
$98
$131
$124
$353
$134
$163
$163
$460
$0
$0
$0
$0
$0
$0
$0
$0
S. Dakota
$1,501
$617
$512
$2,630
$1,779
$725
$623
$3,127
Wisconsin
$4,031
$5,085
$7,500
$16,616
$5,381
$5,975
$9,241
$20,597
Total
$12,585
$14,442
$19,759
$46,785
$16,589
$17,264
$24,520
$58,373
Iowa
Kansas
Minnesota
Missouri
Nebraska
Ohio
Results
Number of Jobs Created by State and Plant Size, $1.35 Ethanol Price Scenario.
Direct Impact
State
1,000
MT/Day
Illinois
Total Impact
2,000
MT/Day
1,000
MT/Day
2,000
MT/Day
3,170
5,933
15,657
19,372
242
469
1,052
1,258
0
0
0
0
564
359
1,065
1,349
1,704
2,687
6,647
8,975
98
163
353
460
0
0
0
0
Ohio
1,501
725
2,630
3,127
S. Dakota
4,031
5,975
16,616
20,597
Wisconsin
293
331
880
1,058
11,604
16,641
44,901
56,196
Indiana
Iowa
Kansas
Minnesota
Missouri
Nebraska
Total
Conclusions
•
In eight of the states evaluated,
– the construction and operation of an ethanol plant provides
substantial estimated economic impacts for total industry output
and employment.
– The number of new jobs ranges from 576 to 910 for the 1,000
MT/day plants. In the case of an ethanol plant processing 2,000
MT/day, the number of jobs created ranges from 1,104 to 2,107.
•
The number of feasible ethanol plants in each state could vary
substantially based on the prices of ethanol and corn stover and plant
size.
– The smaller plant size is much more sensitive to the prices of
ethanol than to the price of the corn stover. In the smaller plant,
no plants are feasible if the ethanol price is at $1.15/gallon and
the corn stover is at the breakeven price. An estimated 108 plants
are feasible if the price of ethanol is $1.35/gallon at a breakeven
stover price.
– The economies of size present in the larger plant, 2,000 MT/day,
make this plant less sensitive to the changes in prices as the
number of plants ranges from 47 to 72 in the corresponding two
price scenarios outlined above for the 1,000 MT/day plant.
Conclusions
• If producers are guaranteed $1.35/gallon at a
breakeven price scenario for a 2,000 MT/day
plant, an estimated 72 plants would be
constructed, 8.8 billion gallons of ethanol
would be produced, $1.0 billion in gross
income to agricultural producers would occur,
and an estimated economic impact of $58
billion in rural economies of the ten state
region would be realized.
• While the one time impacts of construction
were also estimated, these were not
incorporated into this paper due to space
limitations.