Campus Units

Economics

Document Type

Article

Publication Version

Published Version

Publication Date

3-2007

Journal or Book Title

Canadian Journal of Agricultural Economics

Volume

55

Issue

1

First Page or Article ID Number

63

Last Page

81

DOI

10.1111/j.1744-7976.2007.00080.x

Abstract

We analyze the appropriate size and implied profitability of a representative ethanol processing firm. An analysis based on current processing technology and costs with typical conditions in Iowa product and input markets is useful; because unit production costs have declined 30% in current dollars over the last 15 years; and because discovering a suitable size for processing facilities has been an important part of the cost-reducing process. We apply theoretical plant size rules for a conventional processing business, an integrated producer/processor enterprise, and a processing cooperative. We also introduce a spatial dimension for the corn input market, because ethanol processing facilities can be uniquely large among agri-processing enterprises. The analysis supports three conclusions. First, the most appropriate size may still be larger than many of the recently constructed plants. Second, ethanol processing is a profitable enterprise; for instance, we calculate a return on capital of 14% for a processing business with optimal scale, current costs and technology, and typical market conditions. Third, total producer plus processor profits can be improved moderately, about $0.04/bushel of corn processed, with an integrated producer/processor enterprise; the producer enterprise sets the local corn price through processing capacity, in a fashion that offsets some potential monopsony power.

Comments

This article is from Canadian Journal of Agricultural Economics 55 (2007): 63, doi: 10.1111/j.1744-7976.2007.00080.x.

Rights

Works produced by employees of the U.S. Government as part of their official duties are not copyrighted within the U.S. The content of this document is not copyrighted.

Language

en

File Format

application/pdf

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