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Study: Ethanol plants have higher rates of return for water used

With the ethanol industry being one of the newest contributors to the economy of the High Plains of Texas, several questions still need to be answered, according to Texas AgriLife Extension Service personnel.

While community and state leaders know ethanol plants create jobs and boost economic activity, there are concerns about using scarce water resources for production, said Bridget Guerrero, Ph.D., AgriLife Extension agricultural economics program specialist in Lubbock.

Guerrero, along with other economists from AgriLife Extension, Texas Tech University, Kansas State University and West Texas A&M University, recently conducted a study to help answer that question. A similar study conducted in western Kansas had many of the same conclusions.

The study was funded through the federal Ogallala Aquifer Program. Guerrero said she used an input-output analysis to determine if locating ethanol plants in the High Plains was an effective use of water resources relative to current irrigated-crop production in terms of economic impact.

"We looked at a plant in the Southern High Plains of Texas," she said. "This plant produced 40 million gallons of ethanol, was constructed in 2007 and they employed 35 people after it became operational in 2008."

It was a $65 million construction project, which generated an initial $4.8 million in economic impact to the region, Guerrero said. The sales of ethanol and its related by-products, once it was running in 2008, generated $155.6 million in economic impact annually.

In addition to the 40 million gallons of ethanol, the water used also generates about 130,000 tons of wet and dried distillers grains sold locally to dairies and feedlots, as well as syrup that is added back to the distillers grains and also sold separately as a feed additive, she said.

The ethanol plant studied used 2.7 gallons of water per gallon of ethanol, she said. That would be 300,000 gallons of water per day or a total of 108 million gallons annually. Water is used primarily for cooling and to create mash by mixing milled sorghum and water in the ethanol production process.

"Typically you would think wow, that's a lot of water that the ethanol plants are using," Guerrero said. "But we took the 108 million gallons used by the plant and related that to the equivalent acreage of irrigated corn, wheat, cotton or sorghum."

She said the study found that the equivalent amount of water would produce, in relation to irrigated crops, 199 acres of corn, 331 acres of cotton, 284 acres of sorghum or 265 acres of wheat. The employment generated from these acreages is significantly less than the ethanol plant.

She added that these economic impacts are estimated from the farm-gate backward and any potential future economic benefit to local gins, elevators or further processing sectors tied to irrigated crop production were not captured in this study.

"Thus, the difference in economic impacts between ethanol production and irrigated crop production would not actually be as great when including forward linkages since most irrigated crops are further processed within the region," Guerrero said.

She said, however, that there are also some economic benefits of ethanol production that are not accounted for in this study, such as diversified crop markets and higher commodity prices for farmers, plus the transportation industry effect.

Steve Amosson, Ph.D., AgriLife Extension economist and team leader, said the message from the study is simple: "While the location of ethanol plants within the region will be somewhat limited in the future due to federal policy, it should be encouraged.

"Ethanol production generates significant employment while not using that much water, relatively," he said. "In addition, it complements our other agricultural industries by creating higher grain prices and a cheap source of cattle feed."

For more information or a synopsis of the study, go to http://amarillo.tamu.edu/files/2011/01/Texas-Ethanol-Publication.pdf.

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