SPATIAL DIFFUSION OF ECONOMIC IMPACTS OF INTEGRATED ETHANOL-CATTLE PRODUCTION COMPLEX IN SASKATCHEWAN A Thesis Submitted to the College of Graduate Studies and Research in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy in the Department of Agricultural Economics University of Saskatchewan Saskatoon Emmanuel Chibanda Musaba O Copyright Emmanuel C. Musaba, 1996. All rights reserved. National Library Bibliotheque nationale du Canada Acquisitions and Acquisitions et Bibliographic Sewices services bibliographiques 395 WeIIington Street 395. rue Wellington Ottawa ON K1A ON4 Ottawa ON KIA ON4 Canada Canada Your& vobrs ref6llBIlt8 Our & NomMhwm The author has granted a non- L'auteur a accorde me licence non exclusive licence dowing the exclusive pennettant a la National Library of Canada to Bibliotheque nationale du Canada de reproduce, loan, distribute or sell reproduire, preter' distribuer ou copies of this thesis in microform, vendre des copies de cette these sous paper or electronic formats. la forme de microfichelf2m, de reproduction sur papier ou sur format electronique. The author retains ownership of the L'auteur conserve la propriete du copyright in this thesis. Neither the droit d'auteur qui protege cette these. thesis nor substantial extracts fiom it Ni la these ni des extraits substantiels may be printed or otherwise de celIe-ci ne doivent Stre imprimes reproduced without the author's ou autrement reproduits sans son permission. autorisation. UNIVERSITY OF SASKATCHEWAN College of Graduate Studies and Research SUMMARY OF DISSERTATION Submitted in partial ilfihent b of the requirements for the DEGREE OF DOCTOR OF PHILOSOPHY EMMANUEL CHLBANDA MUSABA Department of AgricuIturd Economics CoUege of Agriculture University of Saskatchewan Examining Committee: Dr. G. Tannous Ram lIbs5torqi.pPFuli)aan/Dean's Designate, Chair College of Graduate Studies and Research Dr. J.D. Spriggs Chair of Advisory Committee Dept. of Agricultural Economics Dr. S.N. Kulshreshtha Advisor, Dept. Agricdtural Economics Dr. J.C. Stabler Dept. of Agricultural Economics Dr. R. Schoney Dept. of Agricultural Economics Dr. L. St. Louis Dept. of Economics External Examiner: Professor G. Brinkman Department of Agricultural Economics and Business University of Guelph Guelph, Ontario NIG 2WI SPATIAL DIFFUSION OF ECONOMIC IMPACTS OF INTEGRATED ETHANOL-CATTLE PRODUCTION COMPLEX IN SASKATCHEWAN. In Saskatchewan, diversification of agriculture and the food sector is a major strategy for economic development. During the 1990s, diversification through ethanol production, along with its linkages with canle feeding has attracted much public attention. Communities of different skis in Saskatchewan, seeking economic opportunities have shown interest in ethanol production because of the perceived benefits a region can capture from such a project. In spite of this interest and perceived benefits, there was no information on the type and magnitude of economic impacts which would accrue to different sized communities. This study was undertaken to fill this information gap by developing knowledge of the economic impacts various levels of communities could capture fiom ethanol-cattle production complexes. Since Saskatchewan communities operate in a hierarchical fashion and are classified into seven levels using central place theory, questions concerning economic development should be viewed in a regional hierarchical framework. A seven-region hierarchically-based interregional input-output model for the Saskatchewan economy was constructed using Supply-Demand Pool (SDP) method in combination with logical assumptions regarding trade patterns within the central place region. It was assumed that higher-level regions are surplus regions in goods produced by non-primary sectors, and hence ship excess supply to producers and final users in the dominated lower-level regions and outside of the province. On the other hand, it was assumed that the hinterland region dominates trade in goods in the primary sectors. The hinterland earned income by producing and supplying goods and services in the primary sectors to the higher-level regions and outside the province. The model consisted of 14 aggregated sectors, seven household sectors. and allowed for net flows of Iabor income through commuting patterns of workers who resided in the seven regions. At the same time the consumption expenditures of residents in a particular region were adjusted for outshopping purchases. The estimated model was used to assess the economic impacts fiom the construction phase and operation phase of an integrated ethanol-cattle production complex across six hierarchical regions. The major findings of this study were that under both phases of the project, intraregional output and labor income impacts occuning in the higher-level regions were larger than those in the lower-level regions. Also, the higher-level regions experienced larger interregional impacts and had spillover coefficients of smaller magnitude compared to lower-level regions. The intraregionaf output and labor income impacts tended to decrease as one moves down the hierarchy fiom top to bottom regions. On the other hand the spillovers or leakages were increasing as one moves down the hierarchy tiom higher-level regions to lower-Ievel regions. The higher-level regions have more diversified economies and smaller leakages of income md spending than lower-level regions. On the other hand, lower-level regions experienced large income leakages through input purchases and consumer spending in neighbouring higher-level regions. The results indicate that lower-level regions will not benefit more than higher-level regions fiom the development of an intepted ethanol-cattle production complex. Thus, if the goal of public hnding of ethanol projects is to maximize impacts in the project-region, then higher-level regions would be preferred to lower-level regions. This raises a concern that the opportunity of pursuing regional development through ethanol processing, may not reach all those communities who need it the most, especially the smaller communities. It is important to mention that integrated ethanol-cattle production continues to enjoy subsidies £?om the governments. However, the results of this study did not address the costs associated with using subsidies to promote ethanol development. Born in Kitwe, Zambia (Northern Rhodesia) Completed Compulsory Military Training and National Service, Kafue Military Camp, &he, Zambia. Bachelor of Agricultural Sciences (with Merit), University of Zambia, Lusaka, Zambia Management Skills Certificate, University of Manitoba, Winnipeg, Canada. Master of Science, Agricultural Economics, University of Guelph, Guelph, Canada. Food Policy Management Certificate, Oxford Food Studies Group and Mananga Agricultural Training Centre, Swaziland. In presenting this thesis in partial ful[illment of the requirements for a Postgraduate degree from the University of Saskatchewan, I agree that the Libraries of this University may make it freely available for inspection. I further agree that permission for copying of this thesis in any manner, in whole or in part. for scholarly purposes may be granted by the professor or professors who supervised my thesis work or, in their absence, by the Head of the Department or the Dean of the College in which my thesis was done. It is understood that any copying or publication or use of this thesis or parts thereof for financial gain shall not be allowed without my written permission. It is also understood that due recognition shall be given to me and to the University of Saskatchewan in any scholarly use which may be made of any material in my thesis. Request for permission to copy or make other use of the material in this thesis in whole or in part should be addressed to: Head of Department of Agricultural Economics University of Saskatchewan Saskatoon, Saskatchewan Canada, S7N 5A8 ABSTRACT Musaba, E.C. Ph.D University of Saskatchewan. Saskatoon, September 1996. Spatial Diffusion of Economic Impacts of Intemated Ethanol-Cattle Production Comolex in Saskatchewan- Advisor: Prof. S. N. Kulshreshtha In Saskatchewan, agriculture is an important sector of the economy. Adverse factors such as decline in world commodity prices get transmitted into reduce farm incomes for regions like Saskatchewan that are highly dependent on foreign exports of wheat and barley. In addition a combination of factors such as the labor-saving technology adopted in agriculture over the years and other natural-resource based activities, and consoldation of the trade centre system, have created unbalanced regional growth. Most rural communities have lower incomes and high levels of unemployment than urban centres. At the same time the viability rural communities is threatened by population loss. In an attempt to alleviate the problems affecting most rural communities, the government in Saskachewan has recognized the need to develop an economically and environmentally sustainable agriculture. In this regard, diversification of agriculture and the food sector was selected as a major strategy for economic development During the 1990s, diver~~cationthrough ethanol production, along with its linkages with cattle feeding. has attracted much public attention. Communities of different sizes in Saskatchewan seeking economic opportunities have shown interest in ethanol production because of the perceived benefits a region can capture from such a project In spite of this interest and the perceived benefits,