Capital costs to construct a conventional ethanol plant producing 100 million gallons per year are $170.593 million. Average annual net returns average $59.216 million with a 1% chance of annual net returns less than $0. Ethanol production stimulates total economic output of $314.221 million in the Georgia economy. Wages and benefits total $20.181 million for 408 jobs in Georgia. State and local governments derive a total of $4.572 million in tax revenues from ethanol production.Resource /Energy Economics and Policy,

Flanders, Archie

Luke-Morgan, Audrey S.

McKissick, John C.

Shumaker, George A.

English

Research Papers in Economics

Title: Economic Impacts of Ethanol Production in Georgia 
 
Authors: 
 
Archie Flanders, Economist 
313-A Conner Hall 
Center for Agribusiness and Economic Development 
University of Georgia 
Athens, GA 30602 
706-542-0751 
archief@.uga.edu 
 
Audrey Luke-Morgan, Agribusiness Economist 
Tifton Campus, RDC 
P.O. Box 1209 
Center for Agribusiness and Economic Development 
University of Georgia 
Tifton, GA 31793 
229-391-6877 
audreylm@uga.edu 
 
George Shumaker, Economist 
Landrum Box 8112 
Center for Agribusiness and Economic Development 
University of Georgia 
Statesboro, GA 30460 
912-681-5653 
shumaker@uga.edu 
 
John McKissick, Center Coordinator 
201 Conner Hall 
Center for Agribusiness and Economic Development 
University of Georgia 
Athens, GA 30602 
706-542-4131 
jmckissick@agecon.uga.edu 
 
 
Selected Paper prepared for presentation at the Southern Agricultural Economics 
Association Annual Meeting, Mobile, Alabama, February 4-6, 2007 
 
 
Copyright 2007 by Archie Flanders, Audrey Luke-Morgan, George Shumaker, and John 
McKissick. All rights reserved. Readers may make verbatim copies of this document for 
non-commercial purposes by any means, provided that this copyright notice appears on 
all such copies. Economic Impacts of Ethanol Production in Georgia 
 
 
 
Abstract 
 
Capital costs to construct a conventional ethanol plant producing 100 million gallons per 
year are $170.593 million. Average annual net returns average $59.216 million with a 1% 
chance of annual net returns less than $0. Ethanol production stimulates total economic 
output of $314.221 million in the Georgia economy. Wages and benefits total $20.181 
million for 408 jobs in Georgia. State and local governments derive a total of $4.572 
million in tax revenues from ethanol production. 
 
Key Words: economic development, economic impact, ethanol production, stochastic 
simulation, truncated multivariate normal distribution 
 
JEL Classifications: R15   1
Economic Impacts of Ethanol Production in Georgia 
 
Changing market conditions for petroleum products create potential markets for alternative 
energy sources. Interest in renewable sources of energy have created potential for agricultural 
production as alternative fuel supplies. Ethanol production has historically been produced close 
to corn production which is used as a feedstock. There is much interest among potential investors 
for the feasibility of ethanol production in Georgia. Public policy concerns of new energy 
sources are related to reducing consumption of petroleum and stimulating economic 
development through production of substitutes for traditional fuels. Investors seek other venture 
capital for financing, but also seek government financial support for prospective ethanol plants. 
Governments are interested in allocating public resources for economic development that may be 
stimulated by operation of an ethanol plant. 
Atlanta is included as an area that does not meet federal standards for air quality. Federal 
requirements for such areas mandate that gasoline sold for consumption must contain a minimum 
of 2% oxygen by weight. Ethanol is a primary oxygenate for gasoline, and environmental 
regulations create potential for increased demand in the Atlanta area (Shumaker, Luke-Morgan, 
and McKissick).  
The objective of this research is to investigate the financial feasibility of an ethanol plant 
in Georgia. Operating costs for the plant used to determine feasibility provide data for an input-
output model to investigate the economic impacts of ethanol production. Potential financial 
success of ethanol plant inform investors who seek a profit, while economic impacts inform 
government officials of the public benefits of supporting ethanol ventures.  
 
 
 
   2
Model and Simulation Methodology 
 
A comprehensive review of literature related to ethanol production is given by Richardson et al. 
Ethanol was first utilized as a U.S. fuel additive in the 1920’s as a gasoline blend with 25% 
ethanol. Interest in ethanol production increased in the early 2000’s with rising gasoline costs 
and uncertain supplies. Feasibility of ethanol production in Texas by Richardson et al applies a 
stochastic simulation analysis over a 10-year period. This research estimates the variability of net 
cash income for a plant producing 50 million gallons per year. Results indicate average net cash 
income of $38 million for 2007. 
This analysis investigates a conventional dry grind type ethanol plant in Georgia 
producing 100 million gallons per year. A fractionation plant is a newer technology than the 
conventional plant. Much greater initial capital costs of the fractionation plant make a 
conventional plant more likely for construction in Georgia. Georgia is presently a deficit corn 
state with most consumption for its large poultry industry imported from Midwestern corn 
producers. An assumption of this analysis is that corn for ethanol production is shipped in from 
Midwestern states. 
Input requirements for 100 million gallons of ethanol are included in a previous Georgia 
feasibility analysis by Shumaker, Luke-Morgan, and McKissick. Capital costs for construction of 
the conventional plant are $170.593 million. A stochastic analysis expands this previous research 
with only deterministic variables by accounting for variable feasibility outcomes. Risk in ethanol 
production is associated with changing prices for products sold, as well as uncertain prices for 
inputs. A conventional ethanol plant produces dried distillers grains and solubles (DDGS), as 
well as carbon dioxide as co-products with ethanol. DDGS is widely used as cattle feed, and can 
be utilized by the Georgia poultry industry in feed rations. Revenue form carbon dioxide is only   3
possible if an ethanol plant has a user of this co-product willing to locate near ethanol 
production. While carbon dioxide could become a co-product that produces revenue, the current 
analysis assumes it is vented into the atmosphere and returns no revenue. 
Stochastic prices for ethanol revenue and unleaded gasoline for an expense as a 
denaturant are determined by Omaha, NE rack prices (Nebraska Ethanol Board). Price variability 
of DDGS sold as a co-product is represented by prices in Lawrenceburg, IN. Feedstock expense 
variability is derived by No. 2 yellow corn prices in Central Illinois (USDA, ERS). Corn prices 
for shipments into Georgia from the Midwest are estimated with a $0.40/bu. differential added to 
Central Illinois prices. 
Correlations between all stochastic prices are estimated with monthly data for 2005-2006. 
Corn prices are not correlated with any of the other prices, but prices for ethanol, DDGS, and 
gasoline have statically significant positive correlations. Table 1 shows the covariance matrix for 
generating 500 iterations of monthly 2005-2006 prices for ethanol, DDGS, and gasoline with the 
multivariate normal function of Simetar (Richardson, Schumann, and Feldman). Corn prices are 
simulated for the same period with a univariate normal distribution in Simetar. Simulation with 
normal distributions can result in simulated random variables that are outside of historical 
bounds (Richardson, Klose, and Gray). Iterations are truncated at levels determined by 
reasonable expectations for annual prices. Table 2 includes historical average monthly prices for 
2005-2006, minimums and maximums for truncation, and the resulting average after truncating 
the iterations. Gasoline used as a denaturant is a lower grade than typical consumer grades and 
the average price in Table 2 is correspondingly lower. Imposing truncation slightly increases all 
prices except for denaturant.    4
Revenue from 100 million gallons of ethanol and 320,225 tons of DDGS leads to annual 
revenue of $245.630 million. Total costs consisting of processing costs and fixed costs are 
$186.414 million in Table 3. Subtracting costs from revenue results in net returns to land and 
management of $59.216 million. Figure 1 indicates the probability that annual NR is less than $0 
is only 1%. There is a 52% probability that NR is greater than $0 and less than $50 million. The 
probability that NR is greater than $50 million is 42%. Thus, average NR is $59.216 million with 
little risk that annual NR is negative.  
Economic Impacts of Ethanol Production 
Results for NR indicate that ethanol production is an attractive investment for investors. 
Economic impact analysis investigates public benefits due to adding an ethanol to the state 
economy. Economic impacts can be estimated with input-output models that separate the 
economy into various industrial sectors such as agriculture, construction, manufacturing, trade, 
and services.  The input-output model then calculates how a change in one industry changes 
output, income, and employment in other industries. These changes, or impacts, are expressed in 
terms of direct and indirect effects. Impacts are interpreted as the contribution of the enterprise to 
the total economy. Direct effects represent the initial impact on the economy of either 
construction or operations of an enterprise. Indirect effects are changes in other industries caused 
by direct effects of an enterprise and include changes in household spending due to changes in 
economic activity generated by direct effects. Thus, the total economic impact is the sum of 
direct and indirect effects. Input-output analysis can interpret the effects of an enterprise in a 
number of ways including output (sales), labor income (employee compensation and proprietary 
income), employment (jobs), and tax revenue (MIG).    5
Economic impacts result from a multiplier effect that begins with expenditures of an 
enterprise stimulating business to business spending, personal income, employment, and tax 
revenue. Impact analysis involves quantification of spending levels and proper allocation to 
impacted sectors. Output impacts are a measure of economic activity that results from enterprise 
expenditures in a specific industrial sector. Output is equivalent to sales, and this multiplier 
indicates how initial economic activity in one sector leads to sales in other sectors. Labor income 
impacts measure purchasing power that is created due to the output impacts. This impact 
provides the best measure of how standards of living are affected for residents in the impact area. 
 An enterprise involves a specified number of employees that is determined by the 
technology utilized Employment multipliers indicate the effect on employment resulting from 
the enterprise initiating economic activity. IMPLAN (MIG) indirect employment includes both 
full-time and part-time jobs without any distinction. Jobs calculated within an IMPLAN 
industrial sector are not limited to whole numbers and fractional amounts represent additional 
hours worked without an additional employee. With no measure of hours involved in 
employment impacts, IMPLAN summations for industrial sectors which include fractional 
employment represent both jobs and job equivalents. Since employment may result from some 
employees working additional hours in existing jobs, instead of terming indirect employment 
impacts as “creating” jobs, a more accurate term is “involving” jobs or job equivalents. 
Table 4 shows the direct output impact of production is equal to the average total revenue 
of the plant. Direct labor income impact is the annual wages and benefits paid to the 46 
employees of the plant. Indirect output is $68.591 million for a total output impact of $314.221 
million to the state economy. Indirect labor income to Georgia is $18.340 million for 362 jobs 
for a total impact of $20.181 million in wages and benefits for 408 jobs. This averages $49,463   6
per job that includes full-time and part-time jobs. Operation of an ethanol plant generates $2.401 
million in state tax revenues and $2.171 million in taxes for local governments in Georgia for 
total taxes of $4.572 million per year. The allocation of impacts in the major industrial sectors of 
the Georgia economy is in Table 5. Ethanol production is a manufacturing process, and this 
sector has the greatest impacts for output. State impacts for labor income and employment are 
greatest in the service sector.  
Summary 
Capital costs to construct a conventional ethanol plant producing 100 million gallons per year are 
$170.593 million. Annual revenues average $245.630 million with average operating costs of 
$186.414 million. Average annual net returns average $59.216 million with a 1% chance of 
annual net returns less than $0. Ethanol production stimulates total economic output of $314.221 
million in the Georgia economy. Wages and benefits total $20.181 million for 408 jobs in 
Georgia. State and local governments derive a total of $4.572 million in tax revenues from 
ethanol production. 
References 
Minnesota IMPLAN Group (MIG). Users Guide, Analysis Guide, Data Guide, IMPLAN 
Professional, Version 2.0. Minnesota IMPLAN Group, Inc., Stillwater, MN, 2004. 
Nebraska Ethanol Board. “Ethanol and Unleaded Gasoline Average Rack Prices.” Nebraska 
Energy Office, Lincoln, NE, Internet site: http://www.neo.ne.gov/statshtml/66.html 
(Accessed December 2006). 
Richardson, James W., Brian K. Herbst, Joe L. Outlaw, David P. Anderson, Steven L. Klose, and 
R. Chope Gill II. “Risk Assessment in Economic Feasibility Analysis: The Case of   7
Ethanol Production Texas.” Agricultural and Food Policy Center, Research Report 06-3, 
The Texas A&M University System, College Station, TX, September 2006. 
Richardson, James W., Steven L. Klose, and Allan W. Gray. “An Applied Procedure for 
Estimating and Simulating Multivariate Empirical (MVE) Probability Distributions in 
Farm-Level Risk Assessment and Policy Analysis.” Journal of Agricultural and Applied 
Economics, 32(2), August 2001: 299-315. 
Richardson, James W., Keith D. Schumann, and Paul A. Feldman. Simulation and Econometrics 
to Analyze Risk, Simetar, Inc., College Station, TX, 2006. 
Shumaker, George A., Audrey-Luke Morgan, and John C. McKissick. “The Economics of 
Ethanol Production in Georgia.” Center for Agribusiness and Economic Development, 
The University of Georgia, Athens, GA, November 2006. 
U.S. Department of Agriculture, Economic Research Service. “Feed Grains Database: Yearbook 
Tables.” Washington, DC, December 2006. Internet site: 
http://www.ers.usda.gov/feedgrains/ (Accessed December 2006). 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   8
 
Table 1. Covariance Matrix for Correlated 
Monthly Prices, 2005-2006    
 Variable  Ethanol  Denaturant  DDGS
Ethanol 0.3799 0.0834 3.033
Denaturant     0.0284 0.7431
DDGS        53.00
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   9
 
Table 2. Historical Average, Truncated Minimum and 
Maximum, Simulated Average for Stochastic Variables 
   Truncated Truncated   
Variable Historical  Minimum  Maximum  Simulated 
Ethanol ($/gal.)  2.17  1.70 2.80 2.20 
Denaturant ($/gal.)  1.00  0.80 1.25 1.00 
DDGS ($/ton)  80.94  70.00 100.00 81.14 
Corn ($/bu.)  2.50  2.30 2.79 2.54 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   10
 
Table 3. Costs of Ethanol Production (100 MG) 
   Dollars 
Feedstock Cost  102,391,160
Enzymes 5,280,000
Yeast & Chemicals  1,810,000
Denaturant- Unleaded Gas  5,017,904
Natural Gas  27,200,000
Electricity 5,000,000
Water/Sewer 800,000
Labor plus Benefits  1,841,423
Repairs & Maintenance  2,000,000
Supplies/Office/Laboratory 400,000
Insurance 800,000
Other/Sales/Gen./Admin 5,780,000
Marketing - Ethanol  1,000,000
Freight - Ethanol  6,000,000
Management/Consulting 2,000,000
Interest on ST Debt  494,916
Processing Costs  167,815,402
   
Depreciation 10,742,193
Interest on LT Debt  7,856,570
Fixed Costs  18,598,763
  
Total Costs  186,414,165
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   11
 
Figure 1. Probabilities NR Less Than $0 and 
Greater Than $50 Million
0.52
0.47
0.01 0%
20%
40%
60%
80%
100%
NR
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   12
 
Table 4. Ethanol Production Impacts to Georgia    
  Direct Indirect Total 
   Impact  Impact  Impact 
Output ($)  245,630,012 68,590,745 314,220,757
Labor Income ($)  1,841,423 18,339,726 20,181,149
Employment 46 362 408
State Taxes ($)      2,401,071
Local Taxes ($)      2,171,327
Sum of Taxes ($)        4,572,398
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   13
 
Table 5. Ethanol Production Impacts to Major Sectors, Georgia 
   Labor   
Sector  Output ($)  Income ($)  Employment 
Agriculture 168,107 51,276 2 
Construction & Mining  719,489 232,707 4 
Utilities 27,061,630 4,897,926 35 
Manufacturing 250,818,176 2,477,896 55 
Transportation, Warehousing  8,723,535 3,006,280 72 
Trade 3,586,806 1,390,323 40 
Finance, Insurance, & Real Estate  4,418,911 1,226,651 24 
Services 16,505,361 6,804,259 174 
Government and non-NAICS  2,218,744 93,832 2 
Total 314,220,757 20,181,149 408 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

An Applied Procedure for Estimating and Simulating Multivariate Empirical (MVE) Probability Distributions in Farm-Level Risk Assessment and Policy Analysis.”

Ethanol and Unleaded Gasoline Average Rack Prices.” Nebraska Energy Office,

Risk Assessment in Economic Feasibility Analysis: The Case of 7 Ethanol Production Texas.” Agricultural and Food Policy Center, Research Report 06-3, The Texas A&M University System,

Simulation and Econometrics to Analyze Risk,

The Economics of Ethanol Production

Users Guide, Analysis Guide, Data Guide,

Economic Impacts of Ethanol Production in Georgia

Economic Impacts of Ethanol Production in Georgia

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