Iowa Corn Cluster of Firm Location Decision Based on Cheap Corn

Share of U.S. Corn Crop in Iowa and Surrounding States (total =53%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

IA IL NE MN SD

Is an industrial cluster being formed in Iowa based on corn?

• Ethanol– 15 ethanol plants in operation (4 wet mill)– 12 plants under construction– More plants in surrounding states– Learning by doing has

• increased efficiency from less than 2.5 gallons per bushel of corn to 3.0 gallons per bushel

• Increased value of byproduct (protein meal) that should lead to relocation of livestock facilities

Is an industrial cluster being formed in Iowa based on corn?

• Biorefineries– Starch for food and industry– Protein for animal feed– Oil for food

• Ability to “crack” corn growing as demand for alternatives to petroleum-based products grows.

• Subsidy-driven increases in HFCS and ethanol have created a knowledge base that can be exploited for profitable new consumer products– (at least a partial payback from distortionary

subsidies?)

Seed Company Impact

• Seed companies centered in the Corn Belt. – R&D labs close to experimental plots– High quality seed producers– Segmentation and handling expertise– Complementary breeding and genetic programs at

Iowa State University

• First large-scale applications of bio-tech by Monsanto and Pioneer naturally has occurred

Investments in Biotech

• Coordinated effort by State of Iowa, ISU and University of Iowa to invest in biotech science and application to processing corn and soybeans,

• Strategic plan of Iowa written by Batelle.– Build on biotech strengths of ISU, U of I,

cheap corn, seed companies, and current state of knowledge about how to process corn to become the biorefinery center of the universe.

Demand Growth from Focus on Biorenewables

• Petroleum-based products impose externalities in terms of global warming in the production process and waste disposal in the elimination process

• Technology exists to replace most products with products made from parts of corn and soybean– Polylactic acid from corn starch is made into plastics– Technology developed by Cargill and produced in a joint venture

by Dow and Cargill– Will degrade into compost in two months– Uses about ½ the energy input as glass or conventional plastic– Can be used to substitute for nylon, packing material, paper,

coton, cellophane, polypropylene, (fishing line)

Biotech Plastic Production

• Dupont will soon market a plant-produced polymer

Questions

• From this emerging cluster, will rural income growth increase?

• Is there a need for more than one corn/soy based cluster?

• Seems likely that demand for biorenewables will not shrink. Is there a need for public support for the effort?

Minimum Certification Requirementsfor Iowa 80 Beef

• The cattle must be produced from a Black

Angus or Red Angus bull.

• Individual animals must be source verified to the

farm of birth using an electronic animal

identification system.

• The cattle must be fed in Iowa for a minimum of

200 days on a high-concentrate ration of at least

75 percent corn or corn co-products.

Individual animals must be age verified and Individual animals must be age verified and

processed by 18 months of age.processed by 18 months of age.

Each carcass must grade Choice Plus or better Each carcass must grade Choice Plus or better

according to official USDA Grades.according to official USDA Grades.

•A second quality level must grade Middle A second quality level must grade Middle

Choice or higher.Choice or higher.

Product will be aged at least 14 days prior to Product will be aged at least 14 days prior to

being sold.being sold.

What Attributes Might Create Value?What Attributes Might Create Value?