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Study claims weak economy hasn’t hindered Iowa biofuel

By DOUG SCHMITZ
Iowa Correspondent

JOHNSTON, Iowa — Despite the current economic lull, a new study by the Iowa Renewable Fuels Assoc. (IRFA) found that biodiesel and ethanol production – coupled with the construction of new biorefineries – continues to fuel Iowa’s economy, pumping nearly $12 billion, or about 9 percent, into the state’s gross domestic product.

“(The year) 2008 was a year of unprecedented challenges for the biofuels industry,” said John Urbanchuk, an economist and a board director at LECG, LLC, a global experts service and consulting firm in Wayne, Pa., at the IRFA’s third annual Iowa Renewable Fuels Summit on Jan. 27 in Des Moines, where the study was released.
“Iowa leads the nation in biofuels output, accounting for 26 percent of U.S. ethanol and 12 percent of biodiesel production capacity,” said Urbanchuk, who authored the report.

Titled Contribution of the Biofuels Industry to the Economy of Iowa, the report said ethanol and biodiesel producers are part of “a manufacturing sector that adds substantial value to agricultural commodities produced in Iowa and makes a significant contribution to the Iowa economy.”

“The Iowa ethanol industry currently uses nearly one billion bushels of corn,” Urbanchuk said. “At current prices, this amounts to nearly $3.5 billion of revenue to Iowa corn farmers. In addition to providing a growing and reliable domestic market for Iowa farmers, the ethanol industry also provides the opportunity for farmers to enjoy some of the value added to their commodity by further processing.”

Despite the challenge to profitability, Urbanchuk said the biofuels industry continued to grow, meeting the Renewable Fuel Standard target of nine billion gallons for 2008.

Nationwide, total ethanol capacity expanded 31 percent to 10.6 billion gallons. At the end of 2008, the report said, Iowa’s 34 operating ethanol plants had capacity of more than 2.7 billion gallons and its nine operating biodiesel plants had 211 million gallons of capacity.

“In addition, five ethanol and two biodiesel plants are under construction or expansion,” Urbanchuk said. “When completed, these new plants will increase Iowa’s biofuel production capacity by nearly 25 percent.”

Currently, Iowa has 38 operational ethanol refineries with a combined annual capacity of over 3 billion gallons, and five ethanol refineries under construction that would add nearly 700 million gallons of capacity, resulting in an additional $1.4 billion expenditure going into Iowa’s ethanol industry as well, Urbanchuk estimated.

According to a recent independent study by the National Biodiesel Board, however, biodiesel added more than 50 cents per bushel to the price of soybeans. While Iowa’s biodiesel industry isn’t as fully developed or as lucrative as its ethanol industry, Urbanchuk said biodiesel contributes significantly to the state’s economy.

To date, Iowa has 14 biodiesel refineries with the capacity to produce more than 317 million gallons annually, with two biodiesel refineries under construction, expansion or projects under development what would add 35 million gallons of annual capacity.
“A healthy biodiesel industry is extremely important to the bottom line of U.S. soybean producers because it utilizes surplus soybean oil that has historically been a drag on the overall soybean market,” said Grant Kimberley, Iowa Soybean Assoc. (ISA) director of market development.

“It stands to reason, the more plants that are running, particularly in Iowa (the largest soybean-producing state) and throughout the Midwestern Soybean Belt, the more likely that a significant amount of soybean oil will be utilized in the production of biodiesel and that’s good for the Iowa and Midwest economy,” he said.

Urbanchuk said the renewable fuels refineries operating at year-end 2008 would generate $2.8 billion of household income for Iowa households, support nearly 83,000 jobs through Iowa’s entire economy (or 5.4 percent of private, non-farm employment) and generate $576 million in state tax revenue.

Conversely, 23 ethanol plants, accounting for 1.7 billion gallons of capacity, were idled during the year, nationwide, Urbanchuk added. In Iowa, there are four ethanol plants with 305 million gallons of capacity and five biodiesel plants accounting for nearly 107 million gallons idled during 2008.

IRFA Executive Director Monte Shaw said bringing idled capacity back into production could hand the state a huge opportunity for further economic growth.

“In addition to the rather large current impact, increased demand for renewable fuels would provide a serious boost to Iowa’s economy,” he said. “If the nine idled biodiesel and ethanol plants resumed production, they would add $300 million to Iowans’ income, create over 9,000 new direct and indirect jobs, and put over $70 million in additional tax revenues into the state coffers.”
Although ethanol production has slowed a bit, Primghar farmer Daryl Haack said it still continues in Iowa.

“When idled ethanol plants come back into production, that will mean more corn is being processed, which in turn will raise the price of corn,” said Haack, a former Iowa Corn Promotion Board director who currently chairs the National Corn Growers Assoc. Ethanol Committee. “It will also mean more people going back to work.”
But according to a Feb. 12 Investors Business Daily editorial, investors who sank millions into the biofuel industry would likely end up losing their shirts, with at least 10 of the nation’s 150 ethanol firms closing about 24 plants in the last three months: “The many investors who were tripping all over themselves to finance biofuel plants last year are finding that going green can mean losing lots of green.”

2/18/2009