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Regional Economic Impact Analysis of Biofuel Production in South-Central

Florida

Report for the Third Deliverable, Hendry County Biofuels Project

Alan W. Hodges and Mohammad Rahmani

University of Florida, IFAS, Food and Resource Economics Department December 2012

Introduction

Florida sugarcane producers harvested 397 thousand acres of sugarcane for sugar and seed in 2011, up 1

percent from the previous year, and sugarcane production was also up by 7 percent, totaling 13,837

thousand tons. The value of Florida sugarcane production for sugar was $493 million which accounted

for 43 percent of total U.S. value for this crop. (USDA, NASS, 2012). During the past couple of years the

price of sugarcane for sugar in the United States has gone up from an average of $29.50 per short ton in

the 2008/09 production season to $41.70 in 2010/11, an increase of 41.4 percent, while in Florida, the

average price of sugarcane increased from $30.10 to $38.0, an increase of 26.3 percent (USDA, NASS,

2012).

The rise in the prices for sugarcane is an indication of its importance for sugar production. The price of

sugar in the world market has also increased significantly during the past couple of years. The increase in

price of sugar has forced the world’s major ethanol producing country, Brazil, to reconsider and review its

use of sugar for ethanol production.

In the United States, the pressure has recently risen on the federal government to relax the EPA mandate

for using ethanol mixed with fuel. Some states, including Florida, as well as some agricultural producer

groups have petitioned for a waiver of the EPA mandate on ethanol, but so far, the EPA has denied these

requests (AGRI-VIEW, Nov. 21, 2012).

As the responsible agency for regulating transportation fuel, the EPA developed the Renewable Fuel

Standard (RFS) program regulations which mandated using 10 percent fuel from renewable sources

mixed with fossil fuels. The RFS program was created under the Energy Policy Act of 2005, and

established the first renewable fuel volume mandate in the United States (EPA, Renewable Fuel Standard,

2012).

The purpose of this report is to evaluate the regional economic impacts of potential ethanol production in

South Florida. The analysis is based on data from relevant industries in the area. At the present time there

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is not an ethanol industry in Hendry County in South Florida. In absence of any actual data, three

scenarios were taken into consideration for a 50 million gallon per year (MGY) ethanol facility (minimum

size). To construct these scenarios, based on available references, the following data and assumptions

were applied;

- Average ethanol yield per acre from sugarcane and sweet sorghum crop were estimated at 500 gallon,

- To produce 50 MGY ethanol 100,000 acres of sugarcane or sweet sorghum should be allocated.

- Sugar yield per acre sugarcane quoted by various sources from 7,200 lbs. to 8,000 lbs. 7,500 is taken as an average.

- Average price of hydrated ethanol at plant site estimated at $1.75 per gallon.

- Sugar price has been volatile recently, however, based on commodity price sources $0.28 per pound is taken as an average.

(Shapouri, et.al. 2006; Salassi and Deliberto 2011; Baucum and Rice 2009: Alvarez and Helsel, 2011).

- Scenario 1: Using part of presently grown sugarcane crop for conversion to ethanol. It is assumed that

sugarcane from 100,000 acres would be converted to ethanol. Based on available data this can

produce as much as 50 million gallons of ethanol.

- Scenario 2: Growing sweet sorghum on part of lands that presently are under sugarcane and convert

the product to ethanol. This scenario requires taking 100,000 acres out of sugarcane production to

allocate to sweet sorghum for conversion to 50 million gallons of ethanol. The 100, 000 acres should

produce as much sweet sorghum (based on research results) that can provide enough feedstock for a 50

million gallon per year ethanol plant.

- Scenario 3 would be to find 100,000 acres of suitable lands in addition to those presently under

sugarcane for growing sweet sorghum and converting the crop to ethanol.

Reviewing the detailed data for scenario 1 and scenario 2 show that neither of these scenarios can be

considered a viable option for establishing a biofuel industry. Scenario 1, using part of presently grown

sugarcane for conversion to ethanol, shows that for $87.5 million worth of produced ethanol (100,000

acres X 500 gallons/acre X $1.75/gallon price of ethanol at conversion plant) the economy in Hendry

County in South Florida will lose $210.0 million in value of sugar (100,000 acres X 7,500 lbs. sugar/acre

X $0.28/lb. price of sugar at conversion plant) that could have been produced instead of ethanol.

Scenario 2, growing sweet sorghum on 100,000 acres instead of sugarcane for conversion to ethanol, does

not presents promising results either. Again, the value of produced ethanol at $87.5 million will be

against $210.0 million foregone value of lost sugar production.

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Based on all the presently available information the only viable option that can benefit the Hendry County

economy and produces ethanol in the area is scenario 3, growing sweet sorghum on 100,000 acres in (in

addition to presently grown sugarcane) and converting it to ethanol. This scenario requires searching to find suitable

land in South Florida and allocating 100,000 acres to production of sweet sorghum for conversion to ethanol.

Our regional economic impact analysis in Hendry County in South Florida will be focused on Scenario 3, growing

100,000 acres of sweet sorghum and converting the crop to ethanol. The best efforts were made to employ as

much data and information as available from regional sources for each scenario along with data from

other sources similar to the conditions in South Florida.

Methodology

Economic impacts of growing sweet sorghum on 100,000 acres in addition to sugarcane presently grown in South

Florida was evaluated with regional economic models constructed with the IMPLAN software (version 3)

and associated data for 2010 (MIG, Inc., 2011). In addition to the regional model for Florida, a regional

model for Hendry-Palm Beach counties was also constructed. Input-output models with social accounting

matrices enable estimation of the secondary impacts of industry activities in the local economy arising

through input purchases from vendors, and through spending by employee households and governments,

known as indirect and induced multiplier effects, respectively (Miller and Blair, 2009). This means that

the multiplier effects captured expenditures by households, local, state and federal governments, and

capital investment generated by new resources garnered by the new activity; growing sweet sorghum and

converting it to ethanol. A glossary of economic impact analysis terminology is provided in Appendix A.

To estimate total economic impacts, economic multipliers were used for sugarcane farming in Hendry

County, Florida, sector # 9 (IMPLAN), which was assumed to be similar for farming activities for sweet

sorghum. Major economic impacts measures include output, employment, value added, and indirect

business taxes. Cost of production was taken as the direct output of one acre of sweet sorghum

production in the area (Alvarez and Helsel, 2011). This analysis will cover regional economic impacts of

growing, harvesting and processing sweet sorghum to produce ethanol.

In order to evaluate regional economic impacts of converting sweet sorghum to ethanol, the total cost of

ethanol production and refining was estimated. In absence of sweet sorghum to ethanol refinery in the

area or presently anywhere else, data from sugarcane conversion facility to ethanol were applied to

estimate the cost of conversion to ethanol. The cost of processing and conversion of sweet sorghum was

estimated at $0.646 per gallon (values were converted to U.S. Dollar from Brazilian currency, Asia-

Pacific Economic Cooperation-APEC, 2010; Cargo et.al. 2010). These processing and conversion costs

are the result of a survey of 20 sugarcane mills producing ethanol in Brazil, and the capital cost

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breakdown by Brazilian sugarcane to ethanol industry. Cost per gallon was applied to the estimated

ethanol production on 100,000 acres of sweet sorghum Hendry County in South Florida to get the direct

output value. Regional economic impact multipliers for processing and conversion of sweet sorghum to

ethanol was estimated by the average of multipliers for sector 48 (Sugar cane mills and refining sector)

and sector 73 (Distilleries) from IMPLAN.

Table 1 shows total economic impacts multipliers for output, employment, value added, and indirect

business taxes for sugarcane farming in Hendry County, and the average that is applied to estimate

ethanol processing economic impacts.

Table 1. Total Economic Impacts Multipliers applied for sweet sorghum production and ethanol conversion processing in Hendry County, Florida

Sector Total

Output Multiplier

Total Employment (Job/$M output)

Total Value Added ($/$ output)

Indirect Business Taxes

($/$ output)

Farming (Sugarcane) 1.661 26.071 0.832 0.071

Sugarcane mills and refining (Hendry CO.) 1.998 10.016 0.604 0.044

Distilleries (Florida) 3.159 22.397 2.271 0.702 Average of Sugarcane mills and

refining + Distilleries 2.578 16.207 1.438 0.373

IMPLAN, 2010 DATA, MIG, Inc.

No capital cost for plant construction is taken into consideration because reliable information could not be found. It is assumed that locally produced ethanol in Hendry County Florida substitutes (domestics/international) for imported product.

Regional Economic Impacts

Production and harvesting of 100,000 acre of sweet sorghum in Hendry County, Florida may generate

$269.1 million in output impacts, 4,223 employment impacts, $134.7 million of value added impacts, and

$11.5 million in indirect business taxes. Processing sweet sorghum to produce ethanol can generate an

additional $83.3 million in output impacts, 523 employment impacts, $46.4 million in value added

impacts, and $12.0 million in indirect business taxes in Florida as summarized in Table 2.  

Table 2. Economic Impacts of growing 100,000 acres of sweet sorghum and conversion to ethanol as biofuel in Florida.

Economic Impacts Output Impacts ($M.)

Employment Impacts (Jobs)

Value Added Impacts ($M.)

Indirect Business Taxes ($M.)

Production and harvesting 269.1 4,223 134.7 11.5

Processing to ethanol 83.3 523 46.4 12.0

Total Economic Impacts 352.4 4,747 181.1 23.5

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Total regional economic impacts of growing, harvesting, processing and converting 100,000 acres of

sweet sorghum to ethanol in Hendry County, Florida can generate a total of $352.4 million in output

impacts, 4,747 jobs, $181.1 million in value added impacts, and $23.5 million in indirect business taxes.

As it is assumed, these results are for a biofuel project that will provide investment for growing sweet

sorghum on 100,000 acres of land that presently is not under any other crop in South Florida.

The estimated regional economic impacts are based on a set of assumptions that construct the underlying

output and other economic impact measures. Considering the high transportation cost of bulky sweet

sorghum material to a processing facility, the assumed 100,000 acres should be in close proximity to the

conversion plant. In addition, the availability and extent of funding to invest in construction of 50 MGY

ethanol plant in South Florida will definitely be a challenging task.

The concern of some agricultural scientists in recent years for allocating agricultural resources to produce

ethanol instead of food makes the case for using agricultural resources to produce ethanol difficult to sell.

This fact should be kept clear that allocating any land presently under any other crop for producing a

biofuel crop would results in forgone earnings from present crop and reduces its regional economic

impacts results.

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Literature and Information Sources Cited

AGRI-VIEW, 2012, http://www.agriview.com/news/crop/epa‐denies‐ethanol‐mandate‐waiver‐requests‐some‐in‐

agriculture‐applauding/article_f5b6b9b2‐3406‐11e2‐9e9f‐0019bb2963f4.html 

Alvarez, Jose and Zane R. Heisel. Economic Feasibility of Biofuel Crops in Florida: Sugarcane on Mineral Soils, University of Florida SC090, August 2011.

Asia-Pacific Economic Cooperation (APEC), "Biofuel Costs, Technologies and Economics in APEC Economies", Final Report, APEC Energy Working Group, December 2010.

Baucum, L.E., and R.W. Rice, “An Overview of Florida Sugarcane” EDIS, Publication #SS-AGR-232, Revised 2009.

Burden, Dan. Switchgrass Profile. Agricultural Marketing Resource Center, Iowa State University, 2011.

Cargo, Christine L., Madhu Khanna, Jason Barton, Eduardo Giuliani, and Weber Amarel, "Competitiveness of Brazilian Sugarcane Ethanol Compared to US Corn Ethanol", Presented at the Agricultural & Applied Economics Association 2010, AAEA,CAES,& WAEA Joint Annual Meeting, Denever, Colorado, July 25-27, 2010

EPA, United States Environment Protection Agency, Transportation & Air Quality, Fuel &Fuel Additives, Renewable Fuel Standard, http://www.epa.gov/otaq/fuels/renewablefuels/index.htm

Helsel, Zane R., and Jose Alvarez. Economic Potential of Sweet Sorghum for Ethanol Production in Florida. University of Florida, FE896, August 2011.

Salassi, E. Michael, and Michael A. Deliberto, “Sugarcane Production in Louisana”, Farm Management Research & Extension Department of Agricultural Economics & Agribusiness, A.E.A. Information Series No. 267, January 2011.

Shapouri, Hossein, Michael Salassi, and J. Nelson Fairbanks, “The Economic Feasibility of Ethanol Production from sugar in the United Staes, USDA, July 2010.

USDA, NASS, 2012, http://www.nass.usda.gov/Statistics_by_State/Florida/Publications/Annual_Statistical_Bulletin/fasb12/C1thru10Fc-2012.pdf

USDA, NASS, Agricultural Statistics Board, “Agricultural Prices”, Table 13, Sugarcane for sugar: price per ton, by state, 2012.

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Appendix A: Glossary of Economic Impact Terms

Terms are presented in a logical order rather than alphabetical order

Direct effects/impacts: Direct impacts represent the revenues, value-added, income, or jobs that result directly from

an economic activity within a regional economy.

Employment or Jobs: Represents the total numbers of wage and salaried employees as well as self-employed jobs.

This includes full-time, part-time and seasonal workers measured in annual average jobs.

Indirect Business Taxes: Include sales, excise, and property taxes as well as fees and licenses paid by businesses

during normal operations. It does not include taxes on profits or income.

Indirect effects/impacts: Indirect effects occur when businesses use revenues originating from outside the region

to purchase inputs (goods and services) from local suppliers. This secondary, or indirect business, generates

additional revenues, income, jobs and taxes for the area economy.

Induced effects/impacts: Induced effects or impacts only occur when new or outside dollars are introduced into a

local economy. Induced economic impacts occur as the households of business owners and employees spend

their earnings from these enterprises to purchase consumer goods and services from other businesses within the

region. This induced effect generates additional revenues, income, jobs and taxes for the area economy.

Input-Output Analysis: The use of input-output models to estimate how revenues or employment for one or more

particular industries, businesses or events in a regional economy will impact other businesses and institutions in

that region, and the regional as a whole.

Input-Output Models: A mathematical representation of economic activity within a defined region using inter-

industry transaction tables or matrices where the outputs of various industries are used as inputs by those same

industries and other industries as well.

Labor Income: All forms of employment compensation, including employee wages and salaries, and proprietor

income or profits.

Local revenues/expenditures: Local revenues or spending represent simple transfers between individuals or

businesses within a regional economy. These transactions do not generate economic spin-off or multiplier

(indirect and induced) effects.

Margins: Represent the differences between retail, wholesale, distributor and producers prices.

Non-local revenues/expenditures: When outside or new revenues flow into a local economy either from the sale

of locally produced goods and services to points outside the study area, or from expenditures by non-local

visitors to the study area, additional economic repercussions occur through indirect and induced effects.

Regional Purchase Coefficient (RPC): The fractional proportion of regional demands (purchases) that are

supplied by local producers or merchants (inside the region). RPCs are used to account for imports within the

input-output model.

Other Property Type Income: Represents corporate profits in addition to payments for rents, royalties, dividends

and interest.

Output: Revenues or sales associated with an industry or economic activity.

Total Impacts: The sum of direct, indirect and induced effects or economic impacts.

Value-added: Includes wages and salaries, interest, rent, profits, and indirect taxes paid by businesses, and also

represents the activity’s impact to Gross Domestic or State Product.