We have described the economic feasibility of utilizing surplus and cull citrus, grapes, raisins, tree fruit, California-grown corn, and Midwest­ern corn as fuel ethanol feedstocks. The cost of production exceeded the price of ethanol for all of the feedstocks we considered. However, in the case of raisins, oranges, and grapes, surplus production could generate additional storage costs. Those costs provide an incentive for considering the sale of surplus or culled production to an ethanol producer at a price less than the market price of the surplus or culled product. For example, in the case of raisins, a fuel ethanol industry might provide higher net rev­enues to farmers who could sell raisins from the reserve pool for ethanol production, rather than storing them until they are released for sale in the fresh market or discarded, as required by the raisin marketing order.

We estimated that the ethanol producer would be willing to pay $66/t for raisins. That price will increase or decrease with changes in ethanol prices. At a price of $66/t, raisin growers would not choose to grow raisins for the ethanol market. However, raisin growers could benefit from having the ethanol market as an alternative diversion when reserve pool prices are low, or when the amount of raisins held in reserve is large. We showed that raisin producers in the San Joaquin Valley would have gained net revenue by selling raisins from storage for ethanol production in 6 of the 10 yr during 1992 and 2001.

One implication of our work is that an ethanol industry in the San Joaquin Valley might provide an economic benefit to raisin growers and producers of other agricultural products that need to be stored before they are sold. A second implication is that a broader range of potential market outlets may reduce uncertainty regarding net revenue, by alleviating some of the downside exposure to the high cost of maintaining reserve stocks.

Future work in this area might include extending our analysis to the grape concentrate and orange juice markets. That research would enhance our understanding of the potential economic impacts of developing an ethanol industry in the San Joaquin Valley. Given that the net returns from the production of ethanol are negative for all of the locally grown feed­stocks we considered, private firms will not choose to produce ethanol in California without a public subsidy. The amount of public funds required to support ethanol production can be reduced if alternative marketing opportunities are identified that allow producers to obtain feedstock mate­rials from farmers at prices that are lower than those in primary markets for surplus and culled products.

Acknowledgments

We appreciate support from the California Department of Food and Agriculture; the California Agricultural Technology Institute; and the Cen­ter for Agricultural Business at the California State University, Fresno. We appreciate also the helpful comments from two anonymous reviewers, and we retain responsibility for any oversights and omissions. This article is Contribution Number TP 03-10 of the California Water Institute.

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