The Feasibility of Further Ethanol Expansion
Over the course of the last few years ethanol production has expanded at an incredible pace, putting strain on corn markets and transportation systems throughout the Midwest. Driven by the government subsidy and profit possibilities, firm entry rates have spiked. Previous to 2006-2007 the ethanol industry had been consuming feedstock dedicated to export, so little effect was felt by food markets. After 2007 ethanol’s demand for corn will begin to weigh on food markets as reduced supply drives up prices. Corn supply is fast becoming a binding constraint to the ethanol’s growth rate. The feasibility of its further expansion hinges upon the growth and technological advances of corn production, along with the ability of the industry to function profitably without the subsidy.
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