A Review of the Economic Rewards and Risks of Ethanol Production

  • David Swenson


Ethanol production doubled in a very short period of time in the U.S. due to a combination of natural disasters, political tensions, and much more demand globally from petroleum. Responses to this expansion will span many sectors of society and the economy. As the Midwest gears up to rapidly add new ethanol manufacturing plants, the existing regional economy must accommodate the changes. There are issues for decision makers regarding existing agricultural activities, transportation and storage, regional economic impacts, the likelihood of growth in particular areas and decline in others, and the longer term economic, social, and environmental sustainability. Many of these issues will have to be considered and dealt with in a simultaneous fashion in a relatively short period of time. This chapter investigates sets of structural, industrial, and regional consequences associated with ethanol plant development in the Midwest, primarily, and in the nation, secondarily. The first section untangles the rhetoric of local and regional economic impact claims about biofuels. The second section describes the economic gains and offsets that may accrue to farmers, livestock feeding, and other agri-businesses as production of ethanol and byproducts increase. The last section discusses the near and longer term growth prospects for rural areas in the Midwest and the nation as they relate to biofuels production.


Ethanol economic impact biofuels farmer ownership scale economies storage grain supply rural development cellulosic ethanol 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Brasher, P. (July 15, 2007). The end of the biofuels money train? The Des Moines Register. Des Moines, Iowa. Retrieved from article?AID=/20070715/BUSINESS01/707150330/-1/biofuelsGoogle Scholar
  2. Brown, R.C. (March 2007). Options for biofuels. Potential to produce liquid fuels from cellulosic feedstock. Alternative crops and alternative policies for bioenergy web program. Iowa State University Cooperative Extension. Retrieved from Scholar
  3. Bureau of Economic Analysis (BEA) (1997). Regional multipliers: A users guide for the Regional Input Output Modeling System (RIMS II). U.S. Department of Commerce. Retrieved from Scholar
  4. Bureau of Economic Analysis (BEA) (2007). State income and employment summary, Table SA04. U.S. economic accounts. U.S. Department of Commerce. Retrieved from Scholar
  5. Clinton, H.R. (July 21, 2006). Remarks of Senator Hillary Rodham Clinton calling for a rural renaissance to restore the promise and prosperity of main streets and rural communities. Prepared speech delivered in Lockport, NY. Retrieved from statements/details.cfm?id=260431&&Google Scholar
  6. Daschle, T.(March 2006). Follow the farmers. American Prospect.Retrieved from farmersGoogle Scholar
  7. EERE (Energy Efficiency and Renewable Energy) (March 2007). Useful information about alternative fuels and their feedstocks. U.S. Department of Energy. Retrieved from Scholar
  8. Energy Information Administration. (August 2007). Short term energy outlook, Table 5A. U.S. Department of Energy. Retrieved from Scholar
  9. FAO (Food and Agriculture Organization) (April 23, 2007). Bioenergy could drive rural development. FAO of the United Nations. Retrieved from 2007/1000540/index.htmlGoogle Scholar
  10. FAPRI 2007 (January 2007). U.S. and world agricultural outlook. Food and Agricultural Policy Research Institute. Iowa State University and the University of Missouri – Columbia. Retrieved from the Center for Agriculture and Rural Development, Iowa State University Web site Scholar
  11. Gallagher, P. (2005). Pricing relationships in processors’ input market areas: Testing theories for corn prices near ethanol plants. Canadian Journal of Agricultural Economics. 53, pp. 117–139.CrossRefGoogle Scholar
  12. Ginder, R. (July 2007). Potential infrastructure constraints on current corn-based and future biomass based U.S. ethanol production. Department of Economics Working Paper #7018, Iowa State University. Retrieved from Scholar
  13. Hart, C. (Summer 2007). Shifting corn basis patterns. Iowa Ag Review, 13:3, pp. 8–10Google Scholar
  14. Koplow, D. (April 2007). Biofuels at what cost? Government support for ethanol and biodiesel in the United States. Global Studies Initiative of the International Institute for Sustainable Development. Retrieved from Scholar
  15. Lavigne, P. (April 29, 2007). Biofuel industry branches out, outside investors flow in. Des Moines Register. Des Moines, IAGoogle Scholar
  16. McNew, K. and Griffith, D. (2005). Measuring the impact of ethanolplants on local grain prices. Review of Agricultural Economics 27:2, pp. 164–180CrossRefGoogle Scholar
  17. Miranowski, J. (November 2006). Economic drivers of biofuels expansion. Cooperative Extension report, Iowa State University. Retrieved from Scholar
  18. Morris, D. (January 2007). Energizing rural America: Local ownership of renewable energy production is the key. Institute for Local Reliance. Retrieved from http://www.americanprogress. org/issues/2007/01/pdf/rural_energy.pdfGoogle Scholar
  19. NASS (National Agriculture Statistical Service) (2007). Crop progress and condition reports. U.S. Department of Agriculture. Retrieved from Charts_and_Maps/index.aspGoogle Scholar
  20. NCBA (National Cattlemen’s Beef Association) (June 2007). Cattle producers urge equal opportunity energy policy. NCBA News. National Cattlemen’s Beef Association. Centennial, CO. Retrieved from Scholar
  21. Novack N. (March 2002). The rise of ethanol in rural America. The Main Street Economist. Center for the Study of Rural America, Federal Reserve Bank of Kansas City.Google Scholar
  22. Swenson, D. (June 2006). Input outrageous: The economic impacts of modern biofuels production. (Paper presented at the Mid-Continent Regional Sciences Association and the Biennial IMPLAN Users Conference, Indianapolis, IN). Retrieved from http://www.econ.iastate. edu/research/webpapers/paper_12644.pdfGoogle Scholar
  23. Swenson, D. (Summer 2007a). Biofueling economic growth in Iowa. Small Farmer’s Journal. 32:2, 33–34.Google Scholar
  24. Swenson, D. (April 2007b). Understanding biofuels economic impact claims. Department of Economics Staff Report, Iowa State University. Retrieved from Scholar
  25. Swenson, D. and Eathington, L. (September 2006). Determining the regional economic values of ethanol production in Iowa considering different levels of local investment. Department of Economics Staff Report, Iowa State University. Retrieved from bewg/Documents/eth_full0706.pdfGoogle Scholar
  26. Tiffany, D. and Eidman, V.R. (August 2003). Factors Associated with success of fuel ethanol producers. Staff Paper PO37. Department of Applied Economics. University of MinnesotaGoogle Scholar
  27. Tokgoz, S., Elobeid A., Fabiosa, J.F., Hayes, D.J., Babcock, B.A., Yu, T.S, Dong, F., Hart, C.E., Beghin, J.C. (May 2007). Emerging biofuels: Outlook of effects on U.S. grain, oilseed, and livestock markets. Center for Agriculture and Rural Development, Iowa State University. Retrieved from Scholar
  28. Ugarte, D., English, B., Jensen, K., Hellwinkel, C., Menard, J., Wilson, B. (2006). Economic and agricultural impacts of ethanol and biodiesel expansion. Agricultural Economics Study Report, University of Tennessee. Retrieved from Scholar
  29. Urbanchuck, J. (January 2005). Contribution of the ethanol industry to the economy of the United States. Renewable Fuels Association. Retrieved from Scholar
  30. Urbanchuck, J. (February 2007). Contribution of the biofuels industry to the economy of Iowa. Iowa Renewable Fuels Association. Retrieved from %20Iowa%20Biofuels%20Economic%20Impact.pdfGoogle Scholar
  31. USDA. (February 2007). Agricultural Projections to 2016. U.S. Department of Agriculture, Office of the Chief Economist. OCE-2007-1. Retrieved from Scholar
  32. USDA. (June 2007). U.S. farmers plant largest corn crop in 63 years. U.S. Department of Agriculture Newsroom. Retrieved from Scholar
  33. S. 1253 (June 15, 2005). Rural renaissance II act of 2005. Senate of the United States, 109th Congress. Retrieved from Scholar
  34. Westcott, P. (May 2007). Ethanol expansion in the U.S.: How will the agriculture sector adjust? Economic Research Service, U.S. Department of Agriculture. Retrieved from Scholar
  35. WSTB (Water and Science Technology Board) (2004). Review of the U.S. Army Corps of Engineers restructured upper Mississippi River-Illinois waterway feasibility study. National Academy of Sciences. Washington, D.S. Retrieved from php?record_id=10873#orgsGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2008

Authors and Affiliations

  • David Swenson
    • 1
  1. 1.Department of Economics, 177 Heady HallIowa State University

Personalised recommendations