Ellen I. Burnes,1 John Hagen,1
Dennis Wichelns,*1,2 and Kristen Callens1

1 Department nf Agricultural Economics,

California State University,

Fresno, CA 93740,

E-mail: dwicbelns@csufresnn. edu; and
2Califnrnia Water Institute, California State University,
Fresno, CA 93740

Abstract

In this article, we estimate the costs of using alternative feedstocks to produce ethanol in a 40 million-gal facility in California’s San Joaquin Val­ley. Feedstocks include corn imported from Midwestern states and locally grown agricultural products such as corn, grapes, raisins, oranges, and other tree fruits. The estimated feedstock costs per gallon of ethanol include $0.92 for Midwestern corn, $1.21 for locally grown corn, $6.79 for grapes, $3.36 for raisins, $3.92 for citrus, and $1.42 for other tree fruit. Adjusting for coproduct values lowers the estimated net feedstock costs to $0.67/gal of ethanol for Midwestern corn, $0.96 for locally grown corn, $6.53 for grapes, and $3.30 for raisins. We also examine the potential increases in net revenue to raisin pro­ducers, made possible by having an alternative outlet available for selling surplus raisins.

Index Entries: Biofuels; renewable energy; raisins; ethanol; feedstocks.

Introduction

Prior to the winter of 2003, the primary oxygenate added to gasoline sold in California was methyl tert-butyl ether (MTBE). Since that time, refiners in California have been discontinuing the use of MTBE, while increasing their use of ethanol as an oxygenate. As MTBE use is discontin­ued, most of the ethanol that will be used in its place likely will be imported from other states. An economic analysis of the potential for producing

*Author to whom all correspondence and reprint requests should be addressed. Applied Biocbemistry and Bintecbnnlngy 95 Vol. 113-116, 2004

ethanol in California is timely and appropriate, given that MTBE is being discontinued, and that California has a large agricultural industry that may benefit from increased demand for some of its products.

In the early 1980s, motivated by fuel shortages, geopolitical uncer­tainty, and high fuel costs, California developed the capability of produc­ing fuel ethanol. Producers demonstrated the ability to make ethanol from local feedstocks including agricultural waste, industrial waste, and other biomass sources. Five ethanol production facilities were constructed in California during that time. Three of those facilities were closed within 10 yr, when fuel prices declined, feedstock costs rose, and subsidies for ethanol production were ended. Nonetheless, California gained valuable experience while the plants were operating. In particular, producers dem­onstrated that ethanol could be produced in California, provided that sub­sidies were available. Producers also learned that plant location and the choice of feedstocks are important firm-level decisions and that regional economics and political considerations influence the financial viability of ethanol production.

As the most productive agricultural region in the United States, it seems appropriate to reconsider the role that ethanol production might play in California. In this article, we estimate the costs of using alternative feedstocks to produce ethanol in a 40 million-gal facility in California’s San Joaquin Valley. We consider seven materials that might be used as an ethanol feedstock: citrus, grapes, raisins, deciduous tree fruit (peaches, plums, and nectarines), corn, almond hulls, and whey. Any of these, except corn, can be described using one or two of the following statements: (1) it is currently produced in surplus amounts in the San Joaquin Valley (grapes and raisins), (2) it is a culled product (grapes, citrus, tree fruit), or (3) it is a byproduct (almond hulls and whey). Ethanol production from any of these sources would enhance the farm-level economics of the primary crop activity by generating new demand for culls, surplus, and byproducts that would otherwise be wasted or sold for a minimal price.

We calculate the costs of using alternative feedstocks on a per-gallon- of-ethanol basis, to enable ready comparison of the relative costs and ben­efits of each feedstock. We assume that ethanol producers must purchase feedstocks at the prevailing market prices of the culls, byproducts, and surplus products. Our results suggest that the cost of producing ethanol using California agricultural products or Midwestern corn is higher than the current price of ethanol. Hence, a public subsidy would be required to encourage ethanol production using any of the feedstocks we examine.

An alternative view of the ethanol question is: would crop producers be willing to sell a portion of their surplus production at a price that ethanol producers would be willing to pay in the absence of a subsidy program? That question is particularly pertinent when producers must store their surplus production for some period of time before it is sold in a primary market. The net price received by producers in those markets declines with the length of time that the surplus production is held in storage. Hence, producers might gain by selling a portion of their surplus production to ethanol producers at a price below the primary market price. We examine this possibility for the case of raisin production and storage in California’s San Joaquin Valley.

Surplus raisin production occurs often in California, and the sale of surplus raisins is restricted somewhat by a federal marketing order. The high cost of storing raisins reduces the net revenue earned by farmers, and the carryover of production from one year to the next can have a depressing impact on future raisin prices. We find that between 1992 and 2001, an ethanol industry would have generated greater revenues for raisin produc­ers in 6 of those 10 yr. We consider only the farm-level benefits of having an alternative outlet available for selling a portion of the surplus raisin production. In particular, we examine the decision to allocate surplus rai­sins from storage, either to the food market or to the ethanol market. We do not consider raisin production costs, because those have already been paid. We assume that the ethanol plant exists, and that its owners would be willing to purchase raisins for use as a feedstock.

Our goals in this article are (1) to estimate the costs of using alternative feedstocks to produce ethanol in a 40 million-gal facility in California’s San Joaquin Valley, and (2) to demonstrate the impact of storage costs on the decision to sell surplus crops for use in ethanol production at a price below the price available in primary markets. We describe the availability and cost of the agricultural products that might be used as feedstocks for etha­nol production in California. We use that information to estimate the costs of producing ethanol and to examine the impact of storage costs on crop marketing decisions.