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Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers

  • Dermot Hayes (a1), Bruce Babcock (a1), Jacinto Fabiosa (a1), Simla Tokgoz (a1), Amani Elobeid (a1), Tun-Hsiang Yu (a2), Fengxia Dong (a1), Chad Hart (a1), Eddie Chavez (a3), Suwen Pan (a4), Miguel Carriquiry (a1) and Jerome Dumortier (a1)...

Abstract

We examined four evolution paths of the biofuel sector using a partial equilibrium world agricultural sector model in CARD that includes the new RFS in the 2007 EISA, a two-way relationship between fossil energy and biofuel markets, and a new trend toward corn oil extraction in ethanol plants. At one extreme, one scenario eliminates all support to the biofuel sector when the energy price is low, while the other extreme assumes no distribution bottleneck in ethanol demand growth when the energy price is high. The third scenario considers a pure market force driving ethanol demand growth because of the high energy price, while the last is a policy-induced shock with removal of the biofuel tax credit when the energy price is high. Standard results hold where the biofuel sector expands with higher energy price, raising the prices of most agricultural commodities through demand side adjustment channels for primary feedstocks and supply side adjustment channels for substitute crops and livestock. On the other hand, the biofuel sector shrinks coupled with opposite impacts on agricultural commodities with the removal of all support including the tax credit. Also, we find that given distribution bottlenecks, cellulosic ethanol crowds marketing channels resulting in a corn-based ethanol price that is discounted. The blenders' credit and consumption mandates provide a price floor for ethanol and for corn. Finally, the tight linkage between the energy and agricultural sectors resulting from the expanding biofuel sector may raise the possibility of spillover effects of OPEC's market power on the agricultural sector.

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Du, X., and Hayes, D.J. “The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry.” CARD Working Paper 08-WP 467, Center for Agricultural and Rural Development, Iowa State University, April 2008. Internet site: http://www.card.iastate.edu/publications/synopsis.aspx?id=1076.
Elobeid, A., Tokgoz, S. Hayes, D.J., Babcock, B.A., and Hart, C.E.The Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment.” AgBioForum 10, 1(2007:1118.
Food and Agricultural Policy Research Institute (FAPRI). Baseline Briefing Book. FAPRI-MU Report #03-08. University of Missouri, March 2008.
Kalaitzandonakes, N., Kaufman, J. Meyer, S. and Thompson, W.The Impact of GM Corn Traits on Biofuel Production.” Transition to a Bio-economy: Environmental and Rural Development Impacts. Farm Foundation Conference Proceedings, October 15, 2008.
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Searchinger, T., Heimlich, R. Houghton, R.A., Dong, F. Elobeid, A. Fabiosa, J. Tokgoz, S. Hayes, D. and Yu, T-H.Use of U.S. Croplands for Biofuels Increases Greenhouse Gases through Emissions from Land Use Change.” Science 319, 5867(2008): 123840.
Thompson, W., Westhoff, P., and Meyer, S.Model of the US Ethanol Market.” FAPRI-MU Report #07-08. University of Missouri, July 2008.
Tokgoz, S., Elobeid, A.E., Fabiosa, J.F., Hayes, D.J., Babcock, B.A., Yu, T-H. Dong, F., and Hart, C.E.Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors.” Review of Agricultural Economics 30, 4(2008:60422.
Tokgoz, S., Elobeid, A., Fabiosa, J.F., Hayes, D.J., Babcock, B.A., Yu, T.-H., Dong, F., Hart, C.E., and Beghin, J.C. “Emerging Biofuels: Outlook of Effects on Grain, U.S., Oilseed, and Livestock Markets.” CARD Staff Report 07-SR 101, Center for Agricultural and Rural Development, Iowa State University, July 2007 (Revised). Internet Site: http://www.card.iastate.edu/publications/synopsis.aspx?id= 1050.
Westhoff, P., Thompson, W., and Meyer, S.Biofuels Impact of Selected Farm Bill Provisions and Other Biofuel Policy Options.” FAPRI-MU Report #06-08. University of Missouri, June 2008.

Keywords

Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers

  • Dermot Hayes (a1), Bruce Babcock (a1), Jacinto Fabiosa (a1), Simla Tokgoz (a1), Amani Elobeid (a1), Tun-Hsiang Yu (a2), Fengxia Dong (a1), Chad Hart (a1), Eddie Chavez (a3), Suwen Pan (a4), Miguel Carriquiry (a1) and Jerome Dumortier (a1)...

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