Inflationary Effects of Biofuel Policy Shocks

Jungkeon Jo, Michael Adjemian and Xiaoli Etienne

No 404350, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: We study how U.S. biofuel policy shocks transmit through agri-food supply chains to downstream markets, including consumer prices, food prices, and food expenditures. Drawing on the institutional structure of U.S. biofuel policy and high-frequency price movements around regulatory announcements, we construct a novel biofuel policy news series and use it as an instrument to estimate the causal effects of biofuel policy shocks on upstream commodity and downstream retail markets. A stringent biofuel policy shock leads to statistically significant inflation across both upstream and downstream markets. In response to the shock, biofuel, oil, and agricultural commodity prices rise substantially; in the downstream market, consumer food prices and the headline CPI increase, while real food expenditures decline. Specifically, fats and oils prices rise more than other food subcategories. Consumer inflation expectations rise following the shock. Weaker statistical evidence indicates that producer food price subcategories respond more strongly than their CPI counterparts. These findings reveal a fundamental trade-off in biofuel policy. While higher commodity prices support agricultural producer revenues, consumers finance these gains through higher retail prices for both fuel and food, with lower-income households bearing a disproportionate burden.

Keywords: Agricultural Finance; Farm Management (search for similar items in EconPapers)
Pages: 55
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404350

DOI: 10.22004/ag.econ.404350

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