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Economic and Marketing Efficiency Among Corn Ethanol Plants

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  • Sesmero, Juan P.
  • Perrik, Richard K.
  • Fulginiti, Lilyan E.

Abstract

In the corn ethanol industry, the ability of plants to obtain favorable prices through marketing decisions is considered important for their overall economic performance. Based on a panel of surveyed of ethanol plants we extend data envelopment analysis (DEA) to decompose the economic efficiency of plants into conventional sources (technical and allocative efficiency) and a new component we call marketing efficiency. The latter measure allows us to evaluate plants’ ability to contract favorable prices of corn and ethanol relative to spot market prices and its implications for their overall economic performance. Results show that plants are very efficient from a technical point of view. Dispersion in overall economic performance observed across units is mainly explained by differences in allocative and marketing sources. Our results are consistent with the view that plants with higher production volumes may perform better, in part, because they can secure more favorable prices through improved marketing performance. Plants also seem to achieve significant improvements in marketing performance through experience and learning-by-doing. These results are consistent with two facts; 1) economies of scale may not be the only reason behind the increase in the average size of plants in the ethanol industry and; 2) there might be incentives for horizontal consolidation across plants.

Suggested Citation

  • Sesmero, Juan P. & Perrik, Richard K. & Fulginiti, Lilyan E., 2011. "Economic and Marketing Efficiency Among Corn Ethanol Plants," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 101001, Australian Agricultural and Resource Economics Society.
  • Handle: RePEc:ags:aare11:101001
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    1. Enghin Atalay & Ali Horta?su & Chad Syverson, 2014. "Vertical Integration and Input Flows," American Economic Review, American Economic Association, vol. 104(4), pages 1120-1148, April.
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    Keywords

    corn ethanol; data envelopment analysis; economic efficiency decomposition; marketing efficiency; mergers; Environmental Economics and Policy;

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