A New Green Revolution?: Meeting Global Food and Energy Demands

Transcription

1 A New Green Revolution?: Meeting Global Food and Energy Demands The Emergence of the Biofuels Sector and the Food vs. Fuel Trade-off Debate Simla Tokgoz Center for Agricultural and Rural Development Iowa State University March 5 th, 2009

2 Outline The emergence and expansion of biofuel markets has had a large impact on the U.S. and international agricultural markets in the past few years. With continuing support for biofuels through policy initiatives in many countries, debate about food versus fuel trade-offs is expected to continue.

3 Outline The magnitude of the impact of the biofuels sector expansion on world agricultural markets depends on a variety of factors: structure of the biofuels market where the biofuels expansion occurs type of feedstock used in the production of biofuels biofuels policy environment in each country crop and livestock production technology

4 Structure of the Biofuels Market Structure of the biofuels market Bottleneck vs. No Bottleneck in the adoption and distribution of ethanol in the U.S. Based on Tokgoz, Elobeid, Fabiosa, Hayes, Babcock, Yu, Dong, Hart, and Beghin Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets CARD Staff Report 07-SR 101.

5 Structure of the Biofuels Market We generate a baseline for the U.S. and international agricultural markets. Crude oil price increases by $10 per barrel in the U.S. The U.S. ethanol industry grows until the net profit margin for corn-based ethanol sector is zero (long-run equilibrium). No Bottleneck Scenario: enough flex-fuel fuel vehicles are sold to accommodate the additional ethanol Bottleneck Scenario: not enough flex-fuel fuel vehicles are sold to accommodate the additional ethanol

6 Comparison of Scenarios Baseline (LRE) No Bottleneck (LRE) Bottleneck (LRE) Crude Oil Price $53.82 per barrel $63.82 per barrel $63.82 per barrel U.S. Ethanol Production 14.8 billion gallons 29.6 billion gallons $22.9 billion gallons U.S. Ethanol Consumption 15.1 billion gallons 29.9 billion gallons 23.2 billion gallons Wholesale Gasoline Price $1.80 per gallon $2.13 per gallon $2.13 per gallon Energy Value of Ethanol $1.20 per gallon $1.42 per gallon $1.42 per gallon Wholesale Ethanol Price- Tax Credit $1.07 per gallon $1.41 per gallon $1.24 per gallon

7 Comparison of Scenarios Baseline (LRE) No Bottleneck (LRE) Bottleneck (LRE) World Corn Price $ per mt $ per mt $ per mt World Soybean Price $ per mt $ per mt $ per mt World Wheat Price $ per mt $ per mt $ per mt World Sorghum Price $ per mt $ per mt $ per mt World Rapeseed Price $ per mt $ per mt $ per mt World Barley Price $ per mt $ per mt $ per mt

8 Location of the Biofuels Expansion It is also critical where the biofuels expansion occurs since the type of feedstock used in the production of biofuels will differ among countries the role of the country in world markets for that particular feedstock will determine the impact on agricultural commodity prices Based on Fabiosa, Beghin, Dong, Elobeid, Tokgoz, and Yu Land Allocation Effects of the Global Ethanol Surge: Predictions from the International FAPRI Model ISU Economics Working Paper #08005.

9 Location of the Biofuels Expansion We generate a baseline for the U.S. and international agricultural markets. We shock the ethanol demand with a permanent 10% exogenous annual expansion: U.S. ethanol expansion Global ethanol expansion (Brazil, China, EU-25, India) We compute annual impact multipliers in proportional deviation from the baseline and report their values summarized in the 10-year average. Formula is (100*(% X/% X/% ethanol use))

10 Location of the Biofuels Expansion U.S. ethanol expansion Direct feedstock effect is on the U.S. corn market and U.S. crops competing with corn for land. Since these shocks propagate worldwide through relative world prices, they impact corn and other coarse grain areas in other countries. Expansion in global ethanol demand Brazil ethanol use and production chiefly affects land used for sugarcane production in Brazil and to a lesser extent in other sugar-producing countries, but with small impacts on other land uses in most countries.

11 Impact Multipliers for Area from Expansion Scenarios (in percent change per unit of ethanol demand change) U.S. Ethanol Demand Expansion World 5.6 Corn Area Sugarcane Area 0.2 Total Crop Area 0.9 U.S Brazil India China

12 Impact Multipliers for Area from Expansion Scenarios (in percent change per unit of ethanol demand change) Global Ethanol Demand Expansion World 0.3 Corn Area Sugarcane Area 13.8 Total Crop Area 0.1 U.S Brazil India China

13 Impact Multipliers for Feed Use from Expansion Scenarios (in percent change per unit of ethanol demand change) U.S. Ethanol Demand Expansion World -9.5 Corn Feed Sorghum Feed 0.6 Soybean Meal -2.8 U.S Brazil India China

14 Impact Multipliers for Feed Use from Expansion Scenarios (in percent change per unit of ethanol demand change) Global Ethanol Demand Expansion World -0.3 Corn Feed Sorghum Feed 0.1 Soybean Meal -0.1 U.S Brazil India China

15 Impact Multipliers for Food Use from Expansion Scenarios (in percent change per unit of ethanol demand change) U.S. Ethanol Demand Expansion World -0.4 Wheat -7.1 Corn -0.5 Barley U.S Brazil India China

16 Impact Multipliers for Food Use from Expansion Scenarios (in percent change per unit of ethanol demand change) Global Ethanol Demand Expansion World 0.3 Wheat 0.3 Corn 0.7 Barley U.S Brazil India China

17 Impact Multipliers for world prices from Expansion Scenarios (in percent change per unit of ethanol demand change) World Price Ethanol Wheat Corn Sorghum Barley U.S. Ethanol Demand Expansion Global Ethanol Demand Expansion

18 Impact Multipliers for world prices from Expansion Scenarios (in percent change per unit of ethanol demand change) World Price Soybean Canola Sunflower Sugar U.S. Ethanol Demand Expansion Global Ethanol Demand Expansion

19 General Conclusions The major effects of U.S. ethanol expansion on U.S. agriculture occurs through corn prices trickling down to other feed grains and other crops prices inducing significant U.S. land allocation changes. These price effects also transmit worldwide, especially feed grains and soybean, and thus affect the land allocation in countries such as China and Brazil. The impact of grain-based ethanol production on feed use and livestock sector depends on the adoption and inclusion rates of DDG for each type of livestock.

20 General Conclusions The effect of global demand shock is limited to sugarcane and sugar markets because Brazil is the largest and most-competitive ethanol producer and uses sugarcane as feedstock. Sugarcane competes less for land with other crops relative to corn. The resulting impact of a shock in world ethanol demand on U.S. agriculture is negligible because of the insulation of the U.S. sugar and ethanol industries through trade protection.

21 Questions?