April 14, 2004
By Susan Thompson
High gas prices have a growing number of policymakers talking
about alternative energy sources. Add in the environmental
concerns and you get more people talking about alternatives.
In Iowa, such talk has been going on for decades, with the
focus on ethanol. A recent
Iowa State University study shows Iowa's ethanol industry
is booming, and there are high expectations for the future.
Ethanol is a high-octane fuel produced when plant sugars are
fermented. In the United States, ethanol is typically produced
from corn and other grain products. Iowans have embraced fuel
that includes ethanol. In February 2004, more than 60 percent
of all gasoline sold in the state contained ethanol.
A study by Paul Gallagher, associate professor of economics,
and Dan Otto, professor of economics, shows Iowa's total
production capacity for ethanol soon will reach 975 million
gallons per year. Annual product sales will be worth $1.79
billion.
Currently, Iowa's ethanol industry has the capacity to produce
663 million gallons annually. Three privately owned wet mills
account for 445 million gallons of that capacity. Nine
farmer-owned or cooperative dry mills, constructed since 1996,
can provide 300 million gallons each year.
Five more farmer-owned or cooperative dry mills are under
construction and scheduled to begin operation in the next
year, plus one additional plant is in the planning stages.
When these six new plants are operating, it will mean another
230 million gallons of ethanol each year. Most of the dry mill
plant owners came together to form the Iowa Renewable Fuels
Association, which commissioned the study.
The Iowa State economists found profits have caused the dry
mill expansion. The current five-year average after tax return
on investment for a typical dry mill is 23 percent.
Iowa's existing ethanol industry generates $363.3 million in
economic activity to local communities. When the new plants
are up and running, the industry will have a $481 million
impact. The existing ethanol plants create 3,390 direct and
indirect jobs. Gallagher and Otto estimated another 830 jobs
will be created with the additional plants.
Currently, the ethanol industry buys 275 million bushels of
corn from Iowa producers each year. When the new plants come
on line, purchases will rise to 361 million bushels annually.
Ethanol plants
also provide a higher local market for farmers' corn. Corn
prices near plant sites average about 12 cents per bushel more
than prices outside the plant's market area. An Iowa county
that typically produces 21 million bushels of corn and has an
ethanol plant would generate an additional $1.1 million in
revenue for corn growers in that county.
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