Spatial and temporal aspects of grain accumulation costs for ethanol production: An Australian case study

Abstract

Ethanol production is increasingly commonplace in many grain-producing regions. This paper uses the grain-producing region of south-western Australia to illustrate spatial and temporal aspects of grain accumulation costs for ethanol production. 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. These costs are the main components of an ethanol plant's operating costs so lessening these costs can offer a comparative advantage for a plant owner. Logistics models based on mathematical programming are constructed for a range of plant sizes and locations for ethanol production. Modelling results identify low-cost sites that generate cost savings, in present value terms, of between 5 and 7.5 per cent, depending on plant size, over the 9-year study period. At all locations, small to medium-sized plants offer advantages of lower and less variable costs of grain accumulation. Yet, all locations and all plant sizes are characterised by marked volatility in the cost of grain accumulation. The profitability of ethanol production based on wheat in this region of Australia is particularly exposed to any prolonged period of high grain prices relative to petroleum prices, given current biofuel-policy settings in Australia.