Saturday, November 22, 2014

Ethanol Plants Will Boost Local Economies — But Not That Much

01/23/2008

land auctionThere is an increased interest in farmland. This is the auction for the Grotelueschen farm north of Columbus, Nebraska, in November.
Photo: jugrote

One boosterish group in Iowa claims that ethanol production in the state has already created 47,000 jobs. Iowa State University economist David Swenson begs to differ. He recommends that to get the true number of jobs created by the ethanol boom, it would be best to divide that 47,000 job claim...by ten.

"The gains to rural communities are real (from ethanol), but they're not as big as folks have made them out to be," Swenson said early this week at the North Dakota Grain Dealers Association meeting in Fargo.

Swenson has been producing papers for the past year that attempt to temper the economic claims made for the ethanol plants springing up in Iowa. (See the map of existing ethanol and biofuels plants in Iowa below.) Yes, Swenson says, there are jobs and benefits to ethanol. But, no, the expansion in ethanol production isn't producing anything near the number of jobs that proponents claim, Swenson writes in recently-released report.

That doesn't mean the ethanol surge and the increasing demand for corn worldwide hasn't had huge effects. Rising food and farmland prices may be the most visible consequences. The Des Moines Register reported yesterday that farmland prices in Iowa rose nearly 23 percent in 2007. Land prices were up more than 22 percent in South Dakota; 19.6 percent in Nebraska; and 21 percent in Wyoming. The rise in farmland prices is driven by demand for crops. Just last Friday, prices on land in Iowa topped $4,000 an acre in an auction that had 20 bidders, some from as far away as California.

Swenson's argument is that the ethanol plants themselves have much smaller economic benefits than most people assume. Having an ethanol plant nearby, for example, adds only a small amount to a bushel of corn — maybe five or ten cents a bushel, or 8.5 cents of extra income per acre.

And despite all the new fuel-production plants being built, very little of that economic activity benefits the local community, according to Swenson. Instead of tens of thousands of new jobs being created in ethanol plants in Iowa, Swenson finds far fewer. He concludes that when all the ethanol plants now under construction are finished, the total boost in employment will amount to 1,865 jobs.

The economist writes that these new plants and their employees will stimulate other economic activity — they will have "multiplier" effects in the economy. But even when these are counted, the average plant will support a total of 133 jobs — not bad, but not a savior for rural Iowa's economy. At most, 5,400 jobs in Iowa can be attributed to ethanol production.

Many of the presumed benefits of the ethanol boom won't be felt in rural communities, Swenson writes. "Many people believe that thousands of construction jobs have been created as a result of Iowa's ethanol plant boom," according to Swenson. "The number of temporary construction jobs for Iowans is greatly over estimated, however." Most of the work designing and planning the new plants is done by firms outside Iowa, for example. Many of the skilled steam and pipe-fitting construction jobs are taken by skilled workers from Oklahoma, Texas and Louisiana.

Swenson's paper is a warning to Iowa policy-makers. "The gap between the rhetoric of promotion and the analysis of state economists is often immense," Swenson cautioned. "If excess public funds are diverted to the promotion of ethanol industries based on highly inflated job values, the state runs the very real risk of short-changing other worthy public spending categories."

Iowa biofuels

The Des Moines Register created this map of all the state's active ethanol (E) and biofuels (B) plants. To see the interactive version, go here .