IDEAS home Printed from https://ideas.repec.org/p/fae/ppaper/2015.04.html
   My bibliography  Save this paper

The Long-Run Impact of Biofuel on Food Prices

Author

Listed:
  • Ujjayant Chakravorty

    (Department of Economics, Tufts University (TSE, CESifo))

  • Marie-Hélène Hubert

    (CREM, Department of Economics, University of Rennes 1)

  • Michel Moreaux

    (Toulouse School of Economics (IDEI, LERNA))

  • Linda Nostbakken

    (Department of Economics, Norwegian School of Economics)

Abstract

More than 40% of US corn is now used to produce biofuels, which are used as substitutes for gasoline in transportation. Biofuels have been blamed universally for past increases in world food prices, and many studies have shown that these energy mandates in the US and EU may have a large (30-60%) impact on food prices. In this paper, we use a partial equilibrium framework to show that demand-side effects – in the form of population growth and income-driven preferences for meat and dairy products rather than cereals – may play as much of a role in raising food prices as biofuel policy. By specifying a Ricardian model with differential land quality, we find that a significant amount of new land will be converted to farming, which is likely to cause a modest increase in food prices. However, biofuels may increase aggregate world carbon emissions, due to leakage from lower oil prices and conversion of pasture and forest land for farming.

Suggested Citation

  • Ujjayant Chakravorty & Marie-Hélène Hubert & Michel Moreaux & Linda Nostbakken, 2015. "The Long-Run Impact of Biofuel on Food Prices," Policy Papers 2015.04, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:ppaper:2015.04
    as

    Download full text from publisher

    File URL: http://faere.fr/pub/PolicyPapers/Chakravorty_Hubert_Moreaux_Nostbakken_FAERE_PP2015.04.pdf
    File Function: First version, 2015
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vernon W. Ruttan, 2002. "Productivity Growth in World Agriculture: Sources and Constraints," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 161-184, Fall.
    2. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2008. "A dynamic model of food and clean energy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1181-1203, April.
    3. Xiaoguang Chen & Madhu Khanna, 2017. "Land Use and Greenhouse Gas Implications of Biofuels: Role of Technology and Policy," Natural Resource Management and Policy, in: Madhu Khanna & David Zilberman (ed.), Handbook of Bioenergy Economics and Policy: Volume II, pages 213-237, Springer.
    4. Don Fullerton & Garth Heutel, 2010. "The General Equilibrium Incidence of Environmental Mandates," American Economic Journal: Economic Policy, American Economic Association, vol. 2(3), pages 64-89, August.
    5. Gouel, Christophe & Hertel, Thomas, 2006. "Introducing Forest Access Cost Functions into a General Equilibrium Model," GTAP Research Memoranda 2215, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
    6. Antonio M. Bento & Lawrence H. Goulder & Mark R. Jacobsen & Roger H. von Haefen, 2009. "Distributional and Efficiency Impacts of Increased US Gasoline Taxes," American Economic Review, American Economic Association, vol. 99(3), pages 667-699, June.
    7. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    8. Thomas W. Hertel & Wallace E. Tyner & Dileep K. Birur, 2010. "The Global Impacts of Biofuel Mandates," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-100.
    9. Brent Sohngen & Robert Mendelsohn, 2003. "An Optimal Control Model of Forest Carbon Sequestration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(2), pages 448-457.
    10. Ujjayant Chakravorty & Marie-Hélène Hubert, 2013. "Global impacts of the biofuel mandate under a carbon tax," Post-Print halshs-00761197, HAL.
    11. Rajagopal, Deepak & Zilberman, David, 2007. "Review of environmental, economic and policy aspects of biofuels," Policy Research Working Paper Series 4341, The World Bank.
    12. Mark W. Rosegrant & Tingju Zhu & Siwa Msangi & Timothy Sulser, 2008. "Global Scenarios for Biofuels: Impacts and Implications ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 495-505.
    13. William D. Nordhaus, 1973. "The Allocation of Energy Resources," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 529-576.
    14. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2012. "Resource Use under Climate Stabilization: Can Nuclear Power Provide Clean Energy?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 349-389, March.
    15. Ujjayant Chakravorty & Marie-HéLène Hubert, 2013. "Global Impacts of the Biofuel Mandate under a Carbon Tax," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 282-288.
    16. Khanna, Madhu, 2008. "Cellulosic Biofuels: Are They Economically Viable and Environmentally Sustainable?," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 23(3), pages 1-6.
    17. Crago, Christine Lasco & Khanna, Madhu, 2014. "Carbon abatement in the fuel market with biofuels: Implications for second best policies," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 89-103.
    18. U. Chakravorty & Marie-Hélène Hubert, 2013. "Global Impacts of the Biofuel Mandate under a Carbon Tax," Post-Print halshs-02315604, HAL.
    19. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers Archive 12881, Iowa State University, Department of Economics.
    20. Keyzer, M.A. & Merbis, M.D. & Pavel, I.F.P.W. & van Wesenbeeck, C.F.A., 2005. "Diet shifts towards meat and the effects on cereal use: can we feed the animals in 2030?," Ecological Economics, Elsevier, vol. 55(2), pages 187-202, November.
    21. Brent Sohngen & Robert Mendelsohn & Roger Sedjo, 1999. "Forest Management, Conservation, and Global Timber Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 1-13.
    22. Harry de Gorter & David R. Just, 2010. "The Social Costs and Benefits of Biofuels: The Intersection of Environmental, Energy and Agricultural Policy," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 4-32.
    23. Chakravorty, Ujjayant & Magne, Bertrand & Moreaux, Michel, 2009. "Endogenous Resource Substitution under a Climate Stabilization Policy: Can Nuclear Power Provide Clean Energy?," Working Papers 2009-19, University of Alberta, Department of Economics, revised 01 Sep 2010.
    24. Catherine Hausman & Maximilian Auffhammer & Peter Berck, 2012. "Farm Acreage Shocks and Crop Prices: An SVAR Approach to Understanding the Impacts of Biofuels," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(1), pages 117-136, September.
    25. Cranfield, J. A. L. & Preckel, Paul V. & Eales, James S. & Hertel, Thomas W., 2002. "Estimating consumer demands across the development spectrum: maximum likelihood estimates of an implicit direct additivity model," Journal of Development Economics, Elsevier, vol. 68(2), pages 289-307, August.
    26. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-1234, December.
    27. Anselm Eisentraut, 2010. "Sustainable Production of Second-Generation Biofuels: Potential and Perspectives in Major Economies and Developing Countries," IEA Energy Papers 2010/1, OECD Publishing.
    28. Amy W. Ando & Madhu Khanna & Farzad Taheripour, 2010. "Market and Social Welfare Effects of the Renewable Fuels Standard," Natural Resource Management and Policy, in: Madhu Khanna & Jürgen Scheffran & David Zilberman (ed.), Handbook of Bioenergy Economics and Policy, chapter 0, pages 233-250, Springer.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amigues, Jean-Pierre & Moreaux, Michel, 2016. "The Joint Dynamics of the Energy Mix, Land Uses and Energy Efficiency Rates During the Transition Toward the Green Economy," TSE Working Papers 16-625, Toulouse School of Economics (TSE).
    2. Defante, Lilliane Renata & Vilpoux, Olivier François & Sauer, Leandro, 2018. "Rapid expansion of sugarcane crop for biofuels and influence on food production in the first producing region of Brazil," Food Policy, Elsevier, vol. 79(C), pages 121-131.
    3. Bahel, Eric & Marrouch, Walid & Gaudet, Gérard, 2013. "The economics of oil, biofuel and food commodities," Resource and Energy Economics, Elsevier, vol. 35(4), pages 599-617.
    4. Eissa, Mohamad Abdelaziz & Al Refai, Hisham, 2019. "Modelling the symmetric and asymmetric relationships between oil prices and those of corn, barley, and rapeseed oil," Resources Policy, Elsevier, vol. 64(C).
    5. Ujjayant Chakravorty & Marie‐Hélène Hubert & Beyza Ural Marchand, 2019. "Food for fuel: The effect of the US biofuel mandate on poverty in India," Quantitative Economics, Econometric Society, vol. 10(3), pages 1153-1193, July.
    6. Duc Hong Vo & Tan Ngoc Vu & Anh The Vo & Michael McAleer, 2019. "Modeling the Relationship between Crude Oil and Agricultural Commodity Prices," Energies, MDPI, vol. 12(7), pages 1-41, April.
    7. Yuehjen E. Shao & Jun-Ting Dai, 2018. "Integrated Feature Selection of ARIMA with Computational Intelligence Approaches for Food Crop Price Prediction," Complexity, Hindawi, vol. 2018, pages 1-17, July.
    8. Yongyang Cai & Kenneth Judd & Jevgenijs Steinbuks, 2017. "A nonlinear certainty equivalent approximation method for dynamic stochastic problems," Quantitative Economics, Econometric Society, vol. 8(1), pages 117-147, March.
    9. Amigues, Jean-Pierre & Moreaux, Michel, 2018. "Competing Land Uses and Fossil Fuel, Optimal Energy Conversion Rates During the Transition Toward a Green Economy Under a Pollution Stock Constraint," TSE Working Papers 18-981, Toulouse School of Economics (TSE).
    10. Brinkman, Marnix L.J. & Wicke, Birka & Faaij, André P.C. & van der Hilst, Floor, 2019. "Projecting socio-economic impacts of bioenergy: Current status and limitations of ex-ante quantification methods," Renewable and Sustainable Energy Reviews, Elsevier, vol. 115(C).
    11. Stephen P. Holland & Jonathan E. Hughes & Christopher R. Knittel & Nathan C. Parker, 2013. "Unintended Consequences of Transportation Carbon Policies: Land-Use, Emissions, and Innovation," NBER Working Papers 19636, National Bureau of Economic Research, Inc.
    12. Mattias, Gaglio & Elena, Tamburini & Giuseppe, Castaldelli & Anna, Fano Elisa, 2021. "Modeling the ecosystem service of agricultural residues provision for bioenergy production: A potential application in the Emilia-Romagna region (Italy)," Ecological Modelling, Elsevier, vol. 451(C).
    13. Bilgili, Faik & Koçak, Emrah & Kuşkaya, Sevda & Bulut, Ümit, 2020. "Estimation of the co-movements between biofuel production and food prices: A wavelet-based analysis," Energy, Elsevier, vol. 213(C).
    14. Curtis McKnight & Feng Qiu & Marty Luckert & Grant Hauer, 2021. "Prices for a second‐generation biofuel industry in Canada: Market linkages between Canadian wheat and US energy and agricultural commodities," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(3), pages 337-351, September.
    15. Palacio-Ciro, Santiago & Vasco-Correa, Carlos Andrés, 2020. "Biofuels policy in Colombia: A reconfiguration to the sugar and palm sectors?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 134(C).
    16. Ujjayant Chakravorty & Marie-Hélène Hubert & Beyza Ural Marchand, 2016. "The effect of the US biofuels mandate on poverty in India," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2016-13, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ujjayant Chakravorty & Marie-Hélène Hubert & Michel Moreaux & Linda Nøstbakken, 2012. "Do Biofuel Mandates Raise Food Prices?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201214, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    2. Ujjayant Chakravorty & Marie‐Hélène Hubert & Beyza Ural Marchand, 2019. "Food for fuel: The effect of the US biofuel mandate on poverty in India," Quantitative Economics, Econometric Society, vol. 10(3), pages 1153-1193, July.
    3. Ujjayant Chakravorty & Marie-Helene Hubert & Michel Moreaux, 2014. "Land Allocation between Food and Energy," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 9(1), pages 52-69, March.
    4. Vorotnikova, Ekaterina & Seale, James L, 2014. "U.S. Ethanol Mandate Is a Hidden Subsidy to Corn Producers," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162551, Southern Agricultural Economics Association.
    5. Ujjayant Chakravorty & Marie-Hélène Hubert & Beyza Ural Marchand, 2016. "The effect of the US biofuels mandate on poverty in India," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 2016-13, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    6. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    7. Chen, Xiaoguang & Huang, Haixiao & Khanna, Madhu & Önal, Hayri, 2014. "Alternative transportation fuel standards: Welfare effects and climate benefits," Journal of Environmental Economics and Management, Elsevier, vol. 67(3), pages 241-257.
    8. Chakravorty, Ujjayant & Hubert, Marie-Hélène & Moreaux, Michel & Nøstbakken, Linda, 2010. "Will Biofuel Mandates Raise Food Prices?," TSE Working Papers 10-212, Toulouse School of Economics (TSE).
    9. Hoel, Michael, 2020. "The rise and fall of bioenergy," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    10. Michael Olaf Hoel, 2018. "The Rise and Fall of Bioenergy," CESifo Working Paper Series 6971, CESifo.
    11. Piroli, Giuseppe & Rajcaniova, Miroslava & Ciaian, Pavel & Kancs, d׳Artis, 2015. "From a rise in B to a fall in C? SVAR analysis of environmental impact of biofuels," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 921-930.
    12. Ujjayant Chakravorty & Marie-HéLène Hubert, 2013. "Global Impacts of the Biofuel Mandate under a Carbon Tax," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 282-288.
    13. HUBERT Marie-Hélène & MOREAUX Michel, 2007. "The challenge of meeting the future food needs," LERNA Working Papers 07.17.238, LERNA, University of Toulouse.
    14. Hakan Eggert & Mads Greaker, 2014. "Promoting Second Generation Biofuels: Does the First Generation Pave the Road?," Energies, MDPI, vol. 7(7), pages 1-16, July.
    15. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey E., 2012. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 1(3), pages 1-28, December.
    16. Ujjayant Chakravorty & Marie-Hélène Hubert & Michel Moreaux, 2010. "Politiques pro-biocarburants et climatique américaines : impact sur les choix énergétiques du Brésil et des Etats-Unis et bilan carbone," Revue économique, Presses de Sciences-Po, vol. 61(1), pages 213-247.
    17. Antonio M. Bento, Richard Klotz, and Joel R. Landry, 2015. "Are there Carbon Savings from US Biofuel Policies? The Critical Importance of Accounting for Leakage in Land and Fuel Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    18. Lapan, Harvey & Moschini, GianCarlo, 2012. "Second-best biofuel policies and the welfare effects of quantity mandates and subsidies," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 224-241.
    19. Michetti, Melania & Parrado, Ramiro, 2012. "Improving Land-use modelling within CGE to assess Forest-based Mitigation Potential and Costs," Climate Change and Sustainable Development 122862, Fondazione Eni Enrico Mattei (FEEM).
    20. María Blanco & Marcel Adenäuer & Shailesh Shrestha & Arno Becker, 2012. "Methodology to assess EU Biofuel Policies: The CAPRI Approach," JRC Research Reports JRC80037, Joint Research Centre (Seville site).

    More about this item

    Keywords

    Clean Energy; Food Demand; Land Quality; Renewable Fuel Standards; Transportation;
    All these keywords.

    JEL classification:

    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fae:ppaper:2015.04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dorothée Charlier (email available below). General contact details of provider: https://edirc.repec.org/data/faereea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.