Inside Iowa State

June 7, 2007

Going against the grain

Community and regional planning economist Swenson gets real on biofuel development

by Mike Ferlazzo, News Service

Dave Swenson wants to make this point clear. He's not against biorenewable research and biofuel development.

He agrees that it makes good sense right now for the country's energy needs and for those who grow the crops and produce the fuel -- particularly in Iowa, which has become the national center of an ethanol plant construction boom. His own research found that there are now just over 30 plants currently processing corn, mostly for ethanol, and as many more under construction, planned or proposed.

But his research has found that the "biofuel boom" is a bit of a mirage in terms of the real economic growth for the rural Iowa communities he studies and advises.

"My rural areas are not doing that hot yet, in spite of all the chatter. They're not growing the way folks would like to see them grow," said Swenson, who reports that 49 of the state's 99 counties are still posting more deaths than births, or "natural declines."

And then there are those political leaders who are trying to influence public funding of biorenewable projects with some pretty sensational economic claims. Swenson found their numbers just don't add up.

"To simplify and to say that biofuels are going to renovate rural areas -- as in all rural areas -- is just a big lie," said Swenson in a recent story by Jim Suhr of The Associated Press.

The associate scientist and lecturer in economics and community and regional planning provides "straight talk" on the bioeconomics of biofuel production in two research papers and a chapter in an upcoming book on the risks and rewards of biofuel development for rural areas.

The proof is in his papers

Swenson worked with Liesl Eathington, a fellow scientist and director of the Office of Social and Economic Trend Analysis (SETA), on the paper titled, "Determining the Regional Economic Values of Ethanol Production in Iowa Considering Different Levels of Local Investment." They used data from the 2002 U.S. Census and the National Income Product Accounts maintained by the U.S. Bureau of Economic Analysis to create a modeling system that considered the job growth potential to a rural area of Iowa for an ethanol plant producing 50 million gallons per year, given different levels of local ownership or investment.

Funded by the W.K. Kellogg Foundation through the Bioeconomy Working Group at Iowa State -- and overseen by ISU's Leopold Center for Sustainable Agriculture -- the study found that with no local ownership, an ethanol plant would either create directly or otherwise stimulate no more than 133 jobs in the regional economy -- with 29 more being created for every 25 percent increase in local ownership of those plants.

"While these values vary by level of local ownership and the overall characteristics of the local economy in which the individual plant resides, higher levels of local ownership yield higher job impacts for rural areas -- so long as returns to investors are robust and competitive with other investment alternatives," Swenson said.

In an earlier paper, Swenson disputed some farm state politicians and industry advocates projections, including former South Dakota Sen. Tom Daschle's claim that U.S. production of 3.1 billion gallons of ethanol created 200,000 jobs.

"These (ethanol) plants are being subsidized with the expectation of huge gains locally," Swenson said. "We don't know that those huge net gains will result. So we need to have a more reasonable perspective during the public-policy process."

Proceed with caution in today's "gold-rush"

Some of those same people are now contributing to today's "gold-rush" mentality on the corn and ethanol markets, Swenson said. Despite the current high prices of both corn and fuel, there's not gold in those fields for all.

"One person's gain has come at someone else's expense," he said. "If corn prices are high, profits at ethanol plants go down, as do the profits of other users of corn. We have much to learn before we understand all of the gains and offsets."

And that's the moral of Swenson's message -- there are many dynamics at work in the state's economy besides biofuel development. He urges communities to proceed with caution before investing too much in this still evolving market.

Read about Dave Swenson and his marathon-running dog, Miss Daisy.

"One person's gain has come at someone else's expense. If corn prices are high, profits at ethanol plants go down, as do the profits of other users of corn. We have much to learn before we understand all of the gains and offsets."

Dave Swenson