CARD: Trade disruptions cost Iowa ethanol producers $105 million

By Erin Voegele | September 25, 2018

A new study by researchers at Iowa State University’s Center for Agricultural and Rural Development has determined current trade disruptions are having a significant impact on the state’s economy, including its ethanol industry.

The study examined different scenarios. Overall, the study shows losses to Iowa’s gross state product (GSP) in the range of $1 billion to $2 billion. Iowa’s 2017 GSP was $190 billion. The U.S. Census Bureau estimates Iowa’s export value for 2017 at approximately $13.4 billion, or about 7 percent of its GSP.

According to the study, Iowa’s soybean industry could lose between $159 million and $891 million. The state’s corn industry may lose between $90 million and $579 million. Iowa ethanol producers are expected to lose approximately $105 million. In addition, the state’s hog industry could lose $558 million to $955 million.

The study explains a 2 percent drop in ethanol prices would result in approximately $105 million in lost revenues to Iowa ethanol producers.

Within the study, the researchers explain that they measure estimates of impact to the state’s ethanol industry as reductions in returns to investors. “Modeling the losses involves treating investment return reductions as losses in ordinary annual household income,” the study states. “There is, however, a critical consideration. Not all of the ethanol investor shares are owned by Iowans; hence, we have no idea of the actual share of Iowa’s ethanol industry owned by Iowans.”

If Iowa’s ethanol industry was entirely owned by investors within the state—which it is not—then the study estimates the $105 million in revenues by the state’s ethanol investors would result in a $27 million reduction in additional labor income, which is enough to support 693 jobs. The authors explain the total amounts are reasonable estimates of the impact of the losses somewhere in the U.S., but the fraction accruing in Iowa is unknown.

The study also explains there is also an implied impact multiplier of approximately 1.3. “This means that for every dollar of reduced ethanol industry returns to an Iowa household, there is a [30 cent] reduction in labor income in the remainder of the Iowa economy.”

A full report on the study is available on the CARD website.