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

Dermot Hayes, Bruce A. Babcock, Jacinto F. Fabiosa, Simla Tokgoz, Amani E. Elobeid, Yu, Tun-Hsiang (Edward), Fengxia Dong, Chad E. Hart, Eddie C. Chavez, Suwen Pan, Miguel A. Carriquiry and Jerome Dumortier

No 48597, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: We examine four scenarios for the evolution of the biofuel sector using a partial equilibrium model of the world agricultural sector. The model includes the new Renewable Fuels Standard in the 2007 energy act, the 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. Of the remaining two scenarios, one considers a pure market force driving ethanol demand growth because of the high energy price while the other is a policy-induced shock with removal of the biofuel tax credit when the energy price is high. We find that the biofuel sector expands with a higher energy price, raising prices of most agricultural commodities through demand-side adjustments for primary feedstocks and supply-side adjustments for substitute crops and livestock. With the removal of all support, including the tax credit, the biofuel sector shrinks, lowering the prices of most agricultural commodities. We also find that, given distribution bottlenecks, cellulosic ethanol crowds marketing channels, resulting in a discounted price of corn-based ethanol. 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.

Keywords: Agricultural; and; Food; Policy (search for similar items in EconPapers)
Pages: 37
Date: 2009-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/48597/files/09-WP_487.pdf (application/pdf)

Related works:
Journal Article: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers (2009)
Working Paper: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers (2009)
Working Paper: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers (2009)
Working Paper: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers (2009)
Working Paper: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers (2009)
Journal Article: Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:48597

DOI: 10.22004/ag.econ.48597

Access Statistics for this paper

More papers in Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem
Bibliographic data for series maintained by AgEcon Search ().