The Impact of a Sorghum-Based Ethanol Plant on Local Cotton Acreage: A Spatial Approach

Abstract

Over the past decade, construction of starch-based ethanol plants has expanded rapidly across the United States to meet growing (largely policy-induced) ethanol consumption. On the one hand, locating an ethanol plant in a small rural city potentially benefits a local economy significantly in terms of increased job opportunities and tax revenue. In the Texas High Plains, however, there are growing concerns that the introduction of a new demand source for sorghum as feedstock is likely to affect farmers’ cropping decisions in the area around the ethanol plant. Thus, it is important to quantify how the opening of an ethanol plant causes farmers to alter their planting decisions. This study models the cotton acreage response from 2002 to 2014, using county-level panel data collected from Hockley County, Texas, that currently has a 40 million gallon per year sorghum-based ethanol plant in operation. Spatial econometric models are employed to account for any spatial dependence and other factors are used to control for prices, water availability, and other production decision variables. The spatial tests results show that cotton area planted around Hockley County is highly clustered. But after controlling for spatial autocorrelation and dependence, the model results suggest that the existence of the ethanol plant has no effect on the surrounding cotton acreage.