Economics of grain accumulation for ethanol production: a regional case study

Ethanol production is increasingly commonplace in many grain producing regions. This paper uses the grain producing region of Western Australia as a case study to illustrate how the location and size of an ethanol plant affects its grain accumulation costs. Specifically, this study examines how price variability of various wheat grades, combined with spatial and temporal variability in production of those grades affects the costs of grain accumulation for ethanol production. These costs are the main component of a plant's operating costs so lessening these costs can offer a comparative advantage for a plant owner. Logistics models' based on mathematical programming were constructed to depict a range of plant sizes and locations for ethanol production. The key findings from analysis of the models' output are that, in some cases, large cost savings in grain accumulation costs are possible through locating ethanol plants at a sub-set of southern locations in the Albany, Kwinana and Esperance grain receival zones of Western Australia. The southern inland site of Newdegate, in particular, offers the greatest potential savings in costs of grain accumulation, displaying the lowest certainty equivalent of these costs when compared to all other locations. At all locations, small to medium-sized plants offer advantages of lower and less variable costs of grain accumulation.