|By DOUG SCHMITZ
AMES, Iowa — As the nation’s leader of the ethanol plant construction boom, Iowa has recognized the growing need for more extensive studies on the industry’s economic impact in local communities – both on a rural and national scale.
That’s according to a new report by two Iowa State University (ISU) economists, who also underscored the consequences of not understanding the potential economic benefits of ethanol development that have been either underdeveloped or indefensible.
“Iowa’s incredible corn productivity, in the shorter run, made the state the likeliest candidate for ethanol plant construction,” said David Swenson, an ISU associate scientist and lecturer in economics and community and regional planning, and lead author of the study, released Sept. 22.
“As prices and demand characteristics begin to work themselves out, however, it may be quite profitable to produce ethanol in areas of the country with less corn productivity but better market access,” he said.
Currently, Iowa has 21 producing dry mill facilities and 22 either under construction or in the planning phases, according to the Iowa Corn Growers Assoc. The Iowa Renewable Fuels Assoc. said nine plants are now under construction or expansion, with about 13 in the planning stage.
Conducted primarily in the spring and summer of 2006, the study was the brainchild of ISU’s Leopold Center for Sustainable Agriculture and its Bioeconomy Working Group, which funded the research with help from the W.K. Kellogg Foundation.
Titled Determining the Regional Economic Values of Ethanol Production in Iowa Considering Different Levels of Local Investment, the study consisted of research from academics, environmental advocates and industry representatives interested in learning more about bio-economic opportunities and issues, Swenson said last week.
According to the Leopold Center, Swenson and co-author Liesl Eathington, ISU assistant scientist and staff researcher in economics, created a modeling system that considered the job growth potential to a rural area of Iowa for an ethanol plant producing 50 million gallons per year, given the different levels of local ownership or investment.
Swenson and Eathington developed the model by acquiring, developing and processing information on the production characteristics of modern ethanol plants, the Center said.
The researchers also used the 2002 U.S. Census of Manufacturing ethyl-alcohol sector to understand some of the basic characteristics of production, which included jobs, payroll, and benefits. They also used National Income Product Accounts data maintained by the U.S. Bureau of Economic Analysis.
Swenson said that’s what’s been driving the current boom in ethanol plant development – energy anxieties over the past 18 months.
“(This caused) a sharp run-up in prices, the reformulated fuels standards for replacing MTBE with other oxygenators, namely ethyl-alcohol, and the very generous $.51 per gallon subsidy for blending, which supports prices received all along the figurative ethanol pipeline,” Swenson and Eathington said.
In the study, Swenson and Eathington examined four Iowa plants to demonstrate the region-wide economic impact of these plants, given their actual local ownership amount.
Swenson and Eathington determined the local ownership by using zip codes and share amounts of investors within the primary corn market area that was benefited by the respective plants: one completely externally owned, with the local ownership of the second at 27 percent, which accounted for 47 more jobs; the third at 63 percent, accounting for 80 more jobs; and the other at 73 percent, which added 53 more jobs.
According to Swenson, these numbers meant local ownerships receiving dividends were turning around and putting those dividends back into their respective local economies.
“They’re buying consumer goods, and also doing some business spending,” he said.
“What I always tell my classes is that any dollar that leaves our community has a hard time coming back, but a dollar that stays in our community has a multiplier effect.”
But Swenson said these values varied, depending on which area of the state the research team was studying and the extent to which a local economy was developed.
Once the data were obtained and modified, a simulation modeling system was developed to test the consequences of different ownership configurations, conducting simulating new plants in a study region with three major Iowa corn-producing counties that currently didn’t have ethanol plants, Swenson said.
“The baseline amount assumes that there is no local ownership – that the plant is totally externally owned,” he said. “We then allocated the returns to investors back into the county to mathematically model how the county’s economy would react to an increase in that kind of income. In particular, we were interested in the boost in jobs that would accrue.”
Swenson said he was surprised at some of the aspects of the study that surfaced that he didn’t expect to see in the preliminary research findings.
“We truly did not know the extent to which we should expect local spending of profits and how that spending worked its way through an economy,” he said. “Modeling that behavior required us to re-configure our standard approaches to this type of research.
“In effect, we had to take our model apart and put it back together in a way that acknowledged this emerging industry and the differences in ownership that it could exhibit versus traditional industrial development in Iowa,” he said.
The ISU study is available online at www.valuechains.org
This farm news was published in the Oct. 11, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.