Ethanol Trade as Impacted by Climatic Variability: Learning from the U.S-Brazil Experience

Transcription

1 Ethanol Trade as Impacted by Climatic Variability: Learning from the U.S-Brazil Experience Rachna Tewari, Jaime Malaga, and Jeff Johnson Dept. of Ag. and Applied Economics, Texas Tech University, Lubbock, Texas Selected paper for presentation at the 2013 Western Agricultural Economics Association Annual Meetings, Monterey, CA June 28, 2013

2 Outline Introduction Importance of ethanol trade Background Trade model and literature Data and Methods Climatic data and model Results Conclusion

3 Introduction Importance of biofuels, post 1970s Modification in energy policies U.S & Brazil : Top two ethanol producers in the world, production impacted by climatic factors U.S Corn based Brazil- Sugarcane based 2010 U.S (trade surplus $556 million) net exporter of ethanol 2011 U.S exports reached 1.19 billion gallons, and end of trade restrictions tax subsidy, import tariff on Brazilian ethanol.

4 Major ethanol producing countries ( ) Ethanol Production (Million gallons) Country 2007 % 2008 % 2009 % USA 6, % 9, % 10, % Brazil 5, % 6, % 6, % European Union % % 1, % China % % % Thailand % % % Canada % % % Colombia % % % India % % % Australia % % % Other % % % Total 13, % 17, % 19, %

5 Ethanol production (U.S & Brazil) U.S ( ) Brazil ( ) Corn (100,000 MT) Ethanol (Mn gal) Corn for ethanol Production (10,000 Tons) Sugarcane production (Million Tons) Ethanol production (10 Million Gallons) Data from: Renewable Fuels Association, 2012 and Uniao da Industria de Cana de Açúcar, 2012

6 Net Brazilian exports and Net U.S imports ( ) Million gallons Net exports (Brazil) Net Imports (U.S) Source: Data compiled from EIA Annual Energy Review (2011), Renewable Fuels Association (2012), and Uniao da Industria de Cana de Açúcar (ÚNICA), 2012

7 Production and climate U.S and Brazil Total corn production in U.S and average annual precipitation and temperature in Iowa ( ) Total sugarcane production in Brazil and average annual precipitation and temperature in South East Brazil ( ) Corn production U.S (1,000,000 MT) Average temperature Iowa (1/10th of degree Celcius) Average annual Precipitation Iowa (cm) Sugarcane production Brazil (Million Tons) Average temperature S.E Brazil (1/10th of degree Celcius) Average annual Precipitation S.E Brazil (cm) Source: Data compiled from EIA Annual Energy Review (2011), Renewable Fuels Association (2012), and NOAA (2012). Source: Data compiled from Uniao da Industria de Cana de Açúcar (ÚNICA), 2012, and NOAA (2012).

8 Literature - developing climatic variables Limited literature on biofuel trade as impacted by climatic influence on feedstock production. Sugarcane harvest temperature range less than 18ºC beneficial, and total harvest season precipitation > 94mm not favorable in subtropical areas (Deressa, Hassan and Poonyth, 2005). Corn growing season temperatures 41 F (5 0 C) to 95 F (35 0 C) not favorable, and precipitation for higher yields -18 to 20 inches in the Corn Belt (Neild and Newman,1990).

9 Objective Develop a working partial equilibrium trade model to analyze the direction of impact of climatic indicators and market variables on U.S - Brazil ethanol trade over a 30 year study period from

10 A partial equilibrium trade model Export supply function of Brazil Net Brazilian exports = f (market variables, climatic indicators) Import demand function of U.S Net U.S. imports = f (market variables, climatic indicators) Source: Modified from study by Martinez-Gonzalez, Sheldon and Thompson (2007).

11 Ethanol production areas U.S & Brazil 91% 70% U.S EIA, 2011 USDA ERS, 2011

12 Choice of weather stations in Iowa

13 Choice of weather stations in Brazil

14 Data Market variables ( ) Variable [notation in model] Price of ethanol [Peth,t] Net Brazilian exports [Et] Net U.S. imports [It] Price of sugar [Psug,t] Price of oil [Poil,t] Price of corn [Pcorn,t] Real gross domestic product Brazil [RGDPPCBr,t,] Exchange rate [ER,t] Sources [Units] Nebraska Ethanol Board, Energy Information Administration (EIA), and Kansas State University, 2002 [dollars per gallon] Uniao da Industria de Cana de Açúcar (ÚNICA), Walter, Dolzan and Piacente, 2006 [million gallons] U.S. Department of Energy, 2011 [million gallons] World Bank [dollars per pound] Hofstrand and Johanns, 2012 [dollars per barrel] Hofstrand and Johanns, 2012 [dollars per bushel] Economic Research Service-U.S. Department of Agriculture (ERS-USDA) [real dollars] Economic Research Service-U.S. Department of Agriculture (ERS-USDA) [real per dollar]

15 Data Climatic variables ( ) GHCN daily legend (Global Historical Climatology Network) from National Climate Data center (NOAA, 2012) Daily Tmax, Tmin, Precip averaged over 4 weather stations from Climatic indicators for corn and sugarcane developed based on literature Data procured in 1/10 of degree Celsius and 1/10 of millimeter, converted to degree celsius and millimeters.

16 Estimated 2SLS model lne t = α0 + α1 lnpeth,t-1+ α2 ln E,t-1+ α3 lnpsug,t + α4 ln Tmax_Brazil,t + α5 lntmin_brazil,t + α6 lnprcp_brazil,t + α7 lndays_tmin_winter_below18_ Brazil,t + α8 lntot_prcp_winter_ Brazil,t + α9 lner,t + α10 lnrgdppcbr,t + α11ln Poil,t + εt (1) lnit = β0 + β1 lnpeth,t + β2 lnpoil,t + β3 ln Pcorn,t + β4 lntmax_iowa,t + β5 ln Tmin_Iowa,t + β6 lnprcp_iowa,t + β7 ln tot_summer_prcp_iowa,t + β8 ln days_tmax_summer_above35_iowa, t + ʋt (2) Hausman Test Statistic: 1.19, Pr > ChiSq: : indicates the instrumental variables are exogenous

17 Results Export supply function Parameter Estimate Approx. Std Err Pr > t Intercept ln price of ethanol (-1) * ln net Brazilian exports (-1) ** ln price of sugar ln Exchange Rate ln real gross domestic product_ Brazil ln price of oil ln Tmax_Brazil ln Tmin_Brazil ln Prcp_ Brazil ln days_tmin_winter_below18_ Brazil ln tot_prcp_winter_ Brazil **significant at 0.05 level, *significant at 0.10 level

18 Results Import demand function Parameter Estimate Approx. Std Err Pr > t Intercept ln price of ethanol ln price of oil * ln price of corn ln Tmax_Iowa ln Tmin_Iowa * ln Prcp_Iowa ln tot_summer_prcp_iowa ln days_tmax_summer_above35_iowa ** **significant at 0.05 level, *significant at 0.10 level

19 Conclusions South East Brazil - low temperature and increased precipitation during winter, showed a positive relation with ethanol exports. Iowa - negative relation of imports with high summer precip. and summer days >35 deg. Climatic changes influence import demand > export supply. Both export supply and import demand are price elastic and price of oil significantly impacts import demand compared to export supply. Background for predictive models ethanol trade patterns affected by climate, international trade policy studies for bio-fuels.

20 Thank you! Questions?