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Global Economic Impacts of Ethanol Industry Growth
By Dr. Robert Wisner, University Professor of Economics and Coles
Professor of International Agriculture
Iowa State UniversityAmes, Iowa, U.S.A.
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Some perspectives
• Iowa – the epicenter of biofuels growth
• The U.S. – rapid expansion & huge agricultural changes
• Brazil – also expanding very rapidly
• Global impacts
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International Impacts• U.S. ethanol plants under construction to
use 58 mil. tons of corn (doubling use)– 3.5 times the volume of Japan imports of
U.S. corn– 130% of 2006 EU corn crop– 70% of global corn exports
• Other countries are expanding ethanol & biodiesel
• Strong negative impacts on animal ag.• Sharply higher food costs• Major risk-management challenges in Ag.
& bioenergy
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Other Countries with Ethanol Fuels• Canada• China• EU• Thailand
Countries considering ethanol fuels–South Africa–Ukraine–Japan
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Chinese Corn-Ethanol Plant
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U.S. Corn-Ethanol Plant
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Background of U.S. Bioenergy Programs
Began in early 1980s -- corn to ethanol Initial technology: wet milling Owned by large multinational firmsContinual expansion since1980s (except
1995-96 tight corn supplies)10% ethanol, 90% gasoline blend in MidwestEthanol use since 2003 expanding to coastsE-85 use small but expanding
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U.S. Bioenergy Industries2006-07 growth, 34% annually in ethanol,
more rapid in biodieselPrimary feedstocks: corn & soy oilInvestors: farmers, outside firmsBoth political parties strongly support
expansion Availability of crop land -- limiting factorSome cellulose-ethanol plants being planned10% ave. U.S. ethanol/gas in 4 yearsMajor implications for livestock & food prices
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New York Crude Oil
Futures Prices
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Goals of U.S. Bioenergy Programs
1980s: expand corn demand Now:Facilitate clean air programs Create rural jobs Diversify energy sourcesCreate closed carbon circuit,
recycling CO2
45% of U.S. gasoline has ethanol blend
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Corn-ethanol only partial solution to energy challenges
Other feedstocks needed•Municipal wastes•Animal agriculture wastes•Forest product wastes•New crops
New automotive technology•Hybrid gas/electric vehicles•New engine & vehicle designs•Hydrogen fuels & fuel cells
Diversification of energy sourcesIncentives for increased mass transportation Wind power use increasing
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U.S. government incentives for ethanol•Blending tax credit: $0.51/gallon ($0.135/liter) •Tariff on imports: $0.54/gal. ($0.143/liter) •Rural development loans for small plants •Operating capital grants up to $300,000•State incentives & motor fuel tax reductions•Local government help for roads, utilities•Local government property tax exemptions
for several years•Minnesota, Montana E-10% mandate •Iowa-Minnesota goal of E-20% avg. blend•Financial incentives for E-85 retail outletsFederal mandated production levels
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Size of U.S. biofuels industry•121 processing plants•About 75 plants under construction or
expanding •About 235 more planned•Processes 20% of U.S. corn crop for motor
fuel•Potential corn for ethanol, Sept. 2007-
Aug. 2008: 30% of 2006 crop•High corn prices pull land from other crops
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Products of ethanol industry
•Ethanol•Ethanol yield: 2.75 gal./bu., 410
liters/metric ton of corn•CO2
•Dry Distillers Grain & Solubles (DDGS)•0.3 ton/ton of corn•Protein content: 24-26%•Limited in some amino acids
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73,458 (28,834) (1,834)73,458 (28,834) (1,834)
Warren
Boone
Audubon
Pottawattamie
Mills
Fremont Page
Montgomery
Cass
Harrison
Monona
Shelby
Crawford Carroll
Adams Union
RinggoldTaylor Decatur
Clarke
Greene
Adair
Guthrie
Madison
Dallas Polk
Dickinson
Cherokee
Woodbury
Plymouth
Ida Sac
BuenaVista
Sioux
Lyon
ClayO'Brien
Osceola
Humboldt
Calhoun
Pocahontas
HamiltonWebster
Wright
Kossuth
Palo Alto
Emmet
Hancock
Winnebago
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Keokuk
Wapello
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DavisAppanoose
Monroe
Marion
Jasper
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Louisa
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Jefferson
Lee
Henry
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Johnson
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StoryTama
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Mitchell
Floyd Chickasaw
Buchanan Delaware
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Jones
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Fayette
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Clayton
Allamakee
1
Iowa Corn Processing Plants, 2002
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Iowa corn processing & ethanol plants, current & planned, 10/26/06
63
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Harrison Shelby
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Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,
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Mills
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Cherokee
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Iowa corn processing & ethanol plants, current & planned, 11/20/06
63
Capacity: 129% of 2006 cropCapacity: 140% of 2006 Crop
Iowa Corn Processing Plants, Current & Planned, 5/04/07
70 Potential Iowa Plants 11 Just across IA Borders
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*Needed corn Acres @ 188 bu./A. state avg. in 2010
*** *
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Existing & Planned U.S. Corn Processing Plants
Blue = OperatingRed = constructionGreen = plannedPink = Expansion of Existing plants
Figure 2.
8/30/06
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5.5 Bil. Bu for ethanol
area
bill
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How Much More U.S. Construction to Reach 5.5 Bil. Bu. (140 mil. T.)
Corn for Ethanol?• Operating plants:
-- 2.15 Bil. Bu. (54.6 mil. Tons)• Plants under construction:
-- 2.0 Bil. Bu. (50.8 mil. Tons)• Plants soon to build:
-- 0.2 Bil. Bu. (5.08 mil. Tons) Total: 4.35 Bil. Bu. (110.4 mil. Tons)Capacity needed:
1.15 Bil. Bu. (29.2 mil. Tons)(About 29 plants @ 423 mil. Liters/yr.)
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Ethanol Economics• $0.026/liter increase in ethanol price raises break-
even Corn price $11.03/ton• $39.40/ton rise in corn price increases cost/gal.
$0.095/liter • Ethanol prod’n cost $0.318/liter (Univ. of Minnesota-
@$80/ton corn)
• May 8,’07 Iowa ethanol price: $0.556/liter• Recent margin: $0.143/liter (34%) (incl.$0.119/liter
subsidy)• Drops to zero @ corn price of about $200/ton in IA
-- up 48-50% from May 4 price• Other variables: DDGS price, Natural Gas • Note: Plant construction costs have risen sharply
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Needed Yld. @ current Acres
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140 Mil. Tons Corn for ethanol
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5.5 Bil. Bu. For Ethanol
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Source of data: USDA, NASS
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Illinois Corn Yields Drought Tolerant?
2004 2005• NW 184 140• NE 174 129 • WEST 192 141• E.SE. 175 139 • SW 158 133• SE 158 130
% chg.
-24
-26
-27
-21
-16
-18
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$ per Gal.
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Mil. Acre shifts to corn:Hay: 1.0 milCRP: 3.0
Coton: 0.6S. Red wheat: 4.3Other wheat: 0.4; oats 1.0
5.5 bil. Gallons of Ethanol
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Potential U.S. DGS demand by 20Potential U.S. DGS demand by 2012
COF @ 20% of ration 7.1 mil. T. Dairy @ 20% of ration 6.13 mil. T. Hogs @15% of ration 6.72 mil. T.
Total 19.95 mil.T.
Potential productionPotential production 46.8 Mil. T.
5.5 Bil. Bu for ethanol
With 6.5 bil. Bu.: 51.8 Mil. T
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Implications for U.S. and World Livestock, Poultry & Food Costs
• U.S. supplies 2/3 of world corn exports, 20-25% of wheat & 35-40% of cotton exports
• Costs of livestock & poultry feed to double• Large increase in variability of feed & food
costs• Food aid availability?• Accelerated ag expansion into areas with
fragile eco systems • Shift livestock industries from U.S. to South
America? • Rural employment implications in U.S.
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Infrastructure Needs of bioenergy Market(Time Frame: 3 to 4 years)
Sharp Increases in:• Inputs for corn production• Corn receiving, drying, storage, farm
transporting infrastructure• Efficient rail shipping of ethanol & DDGS• More tank cars for ethanol movement• Electric power generation• Water supply systems• Research on pipelines for ethanol• Retail facilities for E-85, E-20 & E-30 stations
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U.S. Cellulose Ethanol
• At least 2 pilot plants being developed• Expect extensive U.S. government emphasisPotential Feedstocks:• DDGS• Corn stover• Prairie grasses• Forest wastes• Municipal wastesResearch for Major handling & storage challenges
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Environmental Issuesfor Research: ethanol
• Impact on groundwater supplies• Long-term effects, mono-culture ag.• Allowable maximum removal of
corn stover & grasseso Soil erosion impactso Soil organic matter impactso Diminished wildlife habitatso Water quality impacts from
more fertilizer
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Key Issues for Agriculture• Alternative feedstocks: which ones, how
soon? Biomass, sweet sorghum, sugar beets, high-oil crops, cane sugar, others
• Differential impacts on livestock & poultry species
• Environmental: continuous corn, off-take of biomass, erosion-prone land
• Efficient use of distillers grain, including new uses
• Risk Management: livestock, crops, ethanol
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Key Issues for Agriculture, II• Future transition of corn-ethanol plants to
other feedstocks• Policy issues: import tax, blending credit, LDPs,
CCPs, E-85 vs. E-10, pipeline possibilities, vehicle redesigning, Hydrogen sources
• Global developments: EU biodiesel, Brazil export potential, Asia, S. Africa bioenergy & global grain supply, demand & prices
• Infrastructure needs: grain handling & storage, transportation, ethanol & ddgs transport
• High Prices encourage oil exploration & conservation
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What Could Change Prospects of Tightening Global Grain Supply?
• Accelerated corn yield increases• Crude oil price collapse• Early break-through in economical
cellulose conversion• U.S.Ethanol import tax removed – longer
term impacts• U.S. $0.51 blending credit reduced or
made variable• Declining global livestock feeding
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http://www.econ.iastate.edu/faculty/wisner/