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Impacts of Ethanol on Planted Acreage in Market Equilibrium

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Abstract

Land use impacts of biofuel expansion have attracted a tremendous amount of attention because of the implications for the climate, the environment, and the food supply. To examine these impacts, we set up an economic framework that links input use and land allocation decisions with ethanol and agricultural commodity markets. Crops can be substitutes or complements in supply depending on the relative magnitude of three effects of crop prices: total cropland effect, land share effect, and input use effect. We show that with unregulated free markets, total cropland area increases with corn prices whether crops are substitutes or complements in supply. Similarly, higher corn yields from exogenous technical changes lead to cropland expansion. The impacts of yield increases for other crops are ambiguous. With a quantity mandate for ethanol, higher mandates mean larger cropland area if corn and other crops are substitutes in demand. For a given mandate, yield improvement causes total cropland to expand if crop demand is elastic enough, or to contract under a very general condition if crop demand is sufficiently inelastic.

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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 08-wp472.

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Date of creation: Jun 2008
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Handle: RePEc:ias:cpaper:08-wp472

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Keywords: biofuels; complements in supply; ethanol; (in)direct land use changes; substitutes in supply; yield increases.;

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  1. Carlos Arnade & David Kelch, 2007. "Estimation of Area Elasticities from a Standard Profit Function," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 89(3), pages 727-737.
  2. Hennessy, David A., 2004. "On Monoculture and the Structure of Crop Rotations," Staff General Research Papers, Iowa State University, Department of Economics 12004, Iowa State University, Department of Economics.
  3. Feng, Hongli & Rubin, Ofir D. & Babcock, Bruce A., 2008. "Greenhouse Gas Impacts of Ethanol from Iowa Corn," Lifecycle Carbon Footprint of Biofuels Workshop, January 29, 2008, Miami Beach, Florida, Farm Foundation 49101, Farm Foundation.
  4. Keeney, Roman & Hertel, Thomas, 2008. "The Indirect Land Use Impacts of U.S. Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses," GTAP Working Papers 2810, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  5. 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, Iowa State University, Department of Economics 12881, Iowa State University, Department of Economics.
  6. Miranowski, John & Orazem, Peter, 1994. "A Dynamic Model of Acreage Allocation with General and Crop-Specific Capital," Staff General Research Papers, Iowa State University, Department of Economics 10695, Iowa State University, Department of Economics.
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Cited by:
  1. Feichtinger, Paul & Salhofer, Klaus, 2013. "The Influence of the Common Agricultural Policy and Heterogeneous Land Quality on Land Rent and Land Allocation," Factor Markets Working Papers, Centre for European Policy Studies 149, Centre for European Policy Studies.
  2. Saraly Andrade de Sá & Charles Palmer & Stefanie Engel, 2012. "Ethanol Production, Food and Forests," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 51(1), pages 1-21, January.
  3. Thompson, Wyatt & Meyer, Seth D. & Westhoff, Patrick C., 2010. "Us Biofuel And Climate Policies Duel Over Cellulosic Biomass," Proceedings Issues, 2010: Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security, June 2010, Stuttgart- Hohenheim, Germany, International Agricultural Trade Research Cons 91404, International Agricultural Trade Research Consortium.
  4. Kanlaya J. Barr & Bruce A. Babcock & Miguel A. Carriquiry & Andre M. Nassar & Leila Harfuch, 2011. "Agricultural Land Elasticities in the United States and Brazil," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 33(3), pages 449-462.
  5. Baker, Justin Scott & Murray, Brian C. & McCarl, Bruce A., 2011. "Biofuels, Climate Policy, And Water Management: Assessing Policy-Induced Shifts On Agriculture’S Extensive And Intensive Margins," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania, Agricultural and Applied Economics Association 104912, Agricultural and Applied Economics Association.
  6. BAHEL, Eric A. & MARROUCH, Walid & GAUDET, Gérard, 2011. "The Economics of Oil, Biofuel and Food Commodities," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2011-02, Universite de Montreal, Departement de sciences economiques.
  7. Vincent Martinet, 2012. "Effect of soil heterogeneity on the welfare economics of biofuel policies," EconomiX Working Papers 2012-13, University of Paris West - Nanterre la Défense, EconomiX.
  8. Feichtinger, Paul & Salhofer, Klaus, 2013. "The Influence of the Common Agricultural Policy and Heterogeneous Land Quality on Land Rent and Land Allocation," Working Papers, Factor Markets, Centre for European Policy Studies 146963, Factor Markets, Centre for European Policy Studies.
  9. Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2012. "Biofuel supply chain design under competitive agricultural land use and feedstock market equilibrium," Energy Economics, Elsevier, Elsevier, vol. 34(5), pages 1623-1633.
  10. Thierry Brunelle & Patrice Dumas, 2012. "Can Numerical Models Estimate Indirect Land-use Change?," Working Papers, Fondazione Eni Enrico Mattei 2012.65, Fondazione Eni Enrico Mattei.
  11. Vincent Martinet, 2010. "Soil heterogeneity, agricultural supply and land-use change: an application to biofuels production," Working Papers, INRA, Economie Publique 2010/05, INRA, Economie Publique.

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