Will an ethanol plant raise the price of corn in your area? Will an ethanol plant generate numerous new jobs? Will an ethanol plant result in the establishment of a feedlot nearby to use the DDGS co-product? Will an ethanol plant energize your local community’s economy? Maybe yes. Maybe no. The farm gate has the answers.

Throughout the Cornbelt, ethanol plants are popping up as fast as a new McDonald’s, but their impact on the local economy is a bit more substantial, say Sarah Low and Andrew Isserman, agricultural economists in the University of Illinois Department of Agricultural, Consumer, and Environmental Economics, which has recently published a comprehensive report on ethanol. They studied the impact of ethanol plants on local communities, since 124 communities have them in operation and 76 more are in the planning or construction phases.

Early ethanol plants were added to corn wet milling plants and added value to the stream of products coming from the complex plants. But once oil prices climbed and corn prices remained low, it became economical to build dry mill corn plants just for production of ethanol. Of course the distillers’ dried grains were a co-product that has made it way to livestock feeding operations. Low and Isserman observe that some plants were farmer cooperatives designed to increase the value of their corn, but more recently the plants have been corporately owned. The local dry mill ethanol plant requires water, natural gas, yeasts, chemicals, enzymes, and corn which it usually pays a 5 to 10 cent premium over local elevators, just to ensure a year round supply without the necessity of storage expense. The premium prices paid for corn become capitalized into local land values, making both the price of the land and cash rent slightly more within the corn draw area around a plant. Low and Isserman say the opportunity to sell corn to an ethanol plant for that amount of premium will result in a 3.5% increase in cash rent, and a 1.4% increase in land values.

Farmers who sell corn to an ethanol plant use the premium to offset the cost of trucking, and 35 to 50 miles is generally the maximum anyone can afford to haul corn to an ethanol plant. Although most plants are built near the corn supply, some California plants pay for corn to be railed in, but have minimal expense in shipping the ethanol since it will be used nearby.

The ethanol industry’s total employment increased 50% between 2000 and 2005 as the number of plants increased from 54 to 124. While specific plant employment is not available, the Department of Labor statistics indicate over half of the ethanol plants will have employment between 20 and 49 workers. A dozen plants employ less than 20 workers, but there are a half dozen plants that employ 50 to 100 workers. Therefore, Low and Isserman say plants are not large community employers.

86% of the plants are located in rural areas, some in mixed counties, because of the need to be near the supply of corn. However, rail service is important, and a good highway is necessary because of the truck traffic. There is also a need for abundant water and power. Low and Isserman say any plans for development of an ethanol plant should address those issues. Another concern is the market for DDGS, and Low and Isserman say in 2005 80% of the DDGS produced was sold out of the region of the plant. A nearby feedlot will not only reduce transportation cost, but can use a wet form of the DDGS to save on the cost of drying it. It has a 5 to 7 day life without spoilage in the wet form. An increase in feeding operations have been locating near ethanol plants, say Low and Isserman, “Nationally, 54% of counties with an ethanol plant have an above average density of cattle on feed, and 87% of plants are within 50 miles of a county with an above average density, even when using data from the 2002 Census of Agriculture with current plant locations.”

Water requirements are substantial, with 300 million gallons of water needed by a plant that produces 100 million gallons of ethanol per year. Waste water treatment is also a major cost, as is a $30 million fee for natural gas for that same sized plant.

While the additional income from corn sales to an ethanol plant will result in more income for farm operators and higher rents for land owners, only a portion will be retained in the local community. Cash rent paid to absentee landowners will leave.

Summary:
A local ethanol plant may provide 30 to 50 additional jobs in the community, and raise the price of corn in addition to cash rents and land values. But an ethanol plant will stay in the community where there is transportation and water infrastructure near the source of corn. But the demand for water and the pressure on the local roadways will create a burden on the community. Political and economic issues challenge the future of the industry, but until the dynamics change that spurred the growth of the industry, local ethanol plants should be considered a contributor to the community economy.