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Impacts of Ethanol on Planted Acreage in Market Equilibrium

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  • Feng, Hongli
  • Babcock, Bruce A.

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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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12959.

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Date of creation: 31 May 2008
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Publication status: Published in American Journal of Agricultural Economics 2010, vol. 92 no. 3, pp. 789-802
Handle: RePEc:isu:genres:12959

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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References

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  1. 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.
  2. David A. Hennessy, 2004. "On Monoculture and the Structure of Crop Rotations," Center for Agricultural and Rural Development (CARD) Publications 04-wp369, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  3. Miranowski, John & Orazem, Peter, 1994. "A Dynamic Model of Acreage Allocation with General and Crop-Specific Capital," Staff General Research Papers 10695, Iowa State University, Department of Economics.
  4. Carlos Arnade & David Kelch, 2007. "Estimation of Area Elasticities from a Standard Profit Function," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(3), pages 727-737.
  5. 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 49101, Farm Foundation.
  6. 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 12881, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. Bai, Yun & Ouyang, Yanfeng & Pang, Jong-Shi, 2012. "Biofuel supply chain design under competitive agricultural land use and feedstock market equilibrium," Energy Economics, Elsevier, vol. 34(5), pages 1623-1633.
  2. Feichtinger, Paul & Salhofer, Klaus, 2013. "The Influence of the Common Agricultural Policy and Heterogeneous Land Quality on Land Rent and Land Allocation," Working Papers 146963, Factor Markets, Centre for European Policy Studies.
  3. Barr, Kanlaya Jintanakul & Babcock, Bruce A. & Carriquiry, Miguel A. & Nassar, Andre M & Harfuch, Leila, 2012. "Agricultural Land Elasticities in the United States and Brazil," Staff General Research Papers 35043, Iowa State University, Department of Economics.
  4. Saraly Andrade de Sá & Charles Palmer & Stefanie Engel, 2012. "Ethanol Production, Food and Forests," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(1), pages 1-21, January.
  5. BAHEL, Eric & MARROUCH, Walid & GAUDET, Gérard, 2011. "The Economics of Oil, Biofuel and Food Commodities," Cahiers de recherche 02-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Thierry Brunelle & Patrice Dumas, 2012. "Can Numerical Models Estimate Indirect Land-use Change?," Working Papers 2012.65, Fondazione Eni Enrico Mattei.
  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," Factor Markets Working Papers 149, Centre for European Policy Studies.
  9. 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 91404, International Agricultural Trade Research Consortium.
  10. 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 104912, Agricultural and Applied Economics Association.
  11. Vincent Martinet, 2010. "Soil heterogeneity, agricultural supply and land-use change: an application to biofuels production," Working Papers 2010/05, INRA, Economie Publique.

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