The effect of the US biofuels mandate on poverty in India

Ujjayant Chakravorty (), Marie-Hélène Hubert and Beyza Ural Marchand

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: More than 40% of US grain is now used for energy and this share is expected to rise under the current Renewable Fuels Mandate (RFS). There are no studies of the global distributional consequences of this purely domestic policy. Using micro-level survey data, we trace the effect of the RFS on world food prices and their impact on household level consumption and wage impacts in India. We ?rst develop a par-tial equilibrium model to estimate the effect of the RFS on the price of selected food commodities - rice, wheat, corn, sugar and meat and dairy, which together provide almost 70% of Indian food calories. World prices for these commodities are predicted to rise by 8-16%. Next, we estimate the price pass-through to domestic Indian prices and wage-price elasticities to account for the impact on workers with di?erent skill levels. Poor rural households in India suffer signi?cant consumption losses, which are regressive. However they bene?t from wage increases because most of them are em-ployed in agriculture. Urban households also bear the higher cost of food, but do not see a concomitant rise in wage incomes because only a small fraction of them work in food-related industries. Welfare impacts are greater among urban households. How-ever, more poor people in India live in villages, so poverty impacts there are larger in magnitude. We estimate that the RFS leads to about 26 million new poor: 21 million in rural and ?ve million in the urban population, roughly 10 percent of the estimated number of poor people in India today.

Keywords: Biofuels; Distributional e?ects; Household welfare; Renewable Fuel Stan-dards; Poverty (search for similar items in EconPapers)
JEL-codes: D31 O12 Q24 Q42 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-agr
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