IDEAS home Printed from https://ideas.repec.org/p/tut/cremwp/2016-13.html
   My bibliography  Save this paper

The effect of the US biofuels mandate on poverty in India

Author

Listed:
  • Ujjayant Chakravorty

    (Department of Economics, Tufts University, USA)

  • Marie-Hélène Hubert

    (CREM, UMR CNRS 6211, University of Rennes 1, France)

  • Beyza Ural Marchand

    (University of Alberta, Canada)

Abstract

More than 40% of US grain is now used for energy and this share is expected to rise under the current Renewable Fuels Mandate (RFS). There are no studies of the global distributional consequences of this purely domestic policy. Using micro-level survey data, we trace the effect of the RFS on world food prices and their impact on household level consumption and wage impacts in India. We ?rst develop a par-tial equilibrium model to estimate the effect of the RFS on the price of selected food commodities - rice, wheat, corn, sugar and meat and dairy, which together provide almost 70% of Indian food calories. World prices for these commodities are predicted to rise by 8-16%. Next, we estimate the price pass-through to domestic Indian prices and wage-price elasticities to account for the impact on workers with di?erent skill levels. Poor rural households in India suffer signi?cant consumption losses, which are regressive. However they bene?t from wage increases because most of them are em-ployed in agriculture. Urban households also bear the higher cost of food, but do not see a concomitant rise in wage incomes because only a small fraction of them work in food-related industries. Welfare impacts are greater among urban households. How-ever, more poor people in India live in villages, so poverty impacts there are larger in magnitude. We estimate that the RFS leads to about 26 million new poor: 21 million in rural and ?ve million in the urban population, roughly 10 percent of the estimated number of poor people in India today.

Suggested Citation

  • 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.
    • Handle: RePEc:tut:cremwp:2016-13
    as

    Download full text from publisher

    File URL: https://ged.univ-rennes1.fr/nuxeo/site/esupversions/cfa523a8-ba35-4418-92e8-660eca1dda07
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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).
    2. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
    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. Ujjayant Chakravorty & Marie‐Hélène Hubert & Michel Moreaux & Linda Nøstbakken, 2017. "Long‐Run Impact of Biofuels on Food Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 733-767, July.
    5. Hanan G. Jacoby, 2016. "Food Prices, Wages, And Welfare In Rural India," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 159-176, January.
    6. 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.
    7. Han, Jun & Liu, Runjuan & Ural Marchand, Beyza & Zhang, Junsen, 2016. "Market structure, imperfect tariff pass-through, and household welfare in Urban China," Journal of International Economics, Elsevier, vol. 100(C), pages 220-232.
    8. 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.
    9. Francesca Mazzolari & Giuseppe Ragusa, 2013. "Spillovers from High-Skill Consumption to Low-Skill Labor Markets," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 74-86, March.
    10. François Bourguignon & Maurizio Bussolo & Luis Pereira, 2008. "The Impact of Macroeconomic Policies on Poverty and Income Distribution," PSE-Ecole d'économie de Paris (Postprint) halshs-00754864, HAL.
    11. 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.
    12. de Janvry, Alain & Sadoulet, Elisabeth, 2010. "The Global Food Crisis and Guatemala: What Crisis and for Whom?," World Development, Elsevier, vol. 38(9), pages 1328-1339, September.
    13. 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.
    14. 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.
    15. World Bank, 2016. "World Development Indicators 2016," World Bank Publications - Books, The World Bank Group, number 23969, December.
    16. Ravindranath, N.H. & Sita Lakshmi, C. & Manuvie, Ritumbra & Balachandra, P., 2011. "Biofuel production and implications for land use, food production and environment in India," Energy Policy, Elsevier, vol. 39(10), pages 5737-5745, October.
    17. Surabhi Mittal, 2006. "Structural Shift in Demand for Food: Projections for 2020," Indian Council for Research on International Economic Relations, New Delhi Working Papers 184, Indian Council for Research on International Economic Relations, New Delhi, India.
    18. Ravallion, Martin, 1990. "Rural Welfare Effects of Food Price Changes under Induced Wage Responses: Theory and Evidence for Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 574-585, July.
    19. Ural Marchand, Beyza, 2012. "Tariff pass-through and the distributional effects of trade liberalization," Journal of Development Economics, Elsevier, vol. 99(2), pages 265-281.
    20. Guido Porto, 2010. "International Market Access and Poverty in Argentina," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 396-407, May.
    21. Michael J. Roberts & Wolfram Schlenker, 2013. "Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate," American Economic Review, American Economic Association, vol. 103(6), pages 2265-2295, October.
    22. Deaton, Angus, 1989. "Rice Prices and Income Distribution in Thailand: A Non-parametric Analysis," Economic Journal, Royal Economic Society, vol. 99(395), pages 1-37, Supplemen.
    23. Ian W. H. Parry & Kenneth A. Small, 2005. "Does Britain or the United States Have the Right Gasoline Tax?," American Economic Review, American Economic Association, vol. 95(4), pages 1276-1289, September.
    24. 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.
    25. Porto, Guido G., 2006. "Using survey data to assess the distributional effects of trade policy," Journal of International Economics, Elsevier, vol. 70(1), pages 140-160, September.
    26. 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.
    27. Muhammad, Andrew & Meade, Birgit Gisela Saager & Regmi, Anita & Seale, James L., 2011. "International Evidence on Food Consumption Patterns: An Update Using 2005 International Comparison Program Data," Technical Bulletins 120252, United States Department of Agriculture, Economic Research Service.
    28. Campa, Jose Manuel & Gonzalez Minguez, Jose M., 2006. "Differences in exchange rate pass-through in the euro area," European Economic Review, Elsevier, vol. 50(1), pages 121-145, January.
    29. Nicita, Alessandro, 2009. "The price effect of tariff liberalization: Measuring the impact on household welfare," Journal of Development Economics, Elsevier, vol. 89(1), pages 19-27, May.
    30. Carriquiry, Miguel A. & Du, Xiaodong & Timilsina, Govinda R., 2011. "Second generation biofuels: Economics and policies," Energy Policy, Elsevier, vol. 39(7), pages 4222-4234, July.
    31. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," The World Bank Economic Review, World Bank, vol. 6(3), pages 399-422, September.
    32. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
    33. 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.
    34. Darryl Jones & Andrzej Kwieciński, 2010. "Policy Responses in Emerging Economies to International Agricultural Commodity Price Surges," OECD Food, Agriculture and Fisheries Papers 34, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    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 & 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.
    2. Ujjayant Chakravorty & Marie‐Hélène Hubert & Michel Moreaux & Linda Nøstbakken, 2017. "Long‐Run Impact of Biofuels on Food Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 733-767, July.
    3. Beyza Ural Marchand, 2019. "Inequality and Trade Policy: The Pro‐Poor Bias of Contemporary Trade Restrictions," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(S1), pages 123-152, November.
    4. L. Alan Winters & Antonio Martuscelli, 2014. "Trade Liberalization and Poverty: What Have We Learned in a Decade?," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 493-512, October.
    5. Hanan G. Jacoby, 2016. "Food Prices, Wages, And Welfare In Rural India," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 159-176, January.
    6. 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.
    7. Nicita, Alessandro & Olarreaga, Marcelo & Porto, Guido, 2014. "Pro-poor trade policy in Sub-Saharan Africa," Journal of International Economics, Elsevier, vol. 92(2), pages 252-265.
    8. Daniel Lederman & Guido Porto, 2016. "The Price Is Not Always Right: On the Impacts of Commodity Prices on Households (and Countries)," The World Bank Research Observer, World Bank, vol. 31(1), pages 168-197.
    9. 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.
    10. Beyza Ural Marchand, 2017. "How does international trade affect household welfare?," IZA World of Labor, Institute of Labor Economics (IZA), pages 378-378, August.
    11. Youngmin BAEK & HAYAKAWA Kazunobu & TSUBOTA Kenmei & URATA Shujiro & YAMANOUCHI Kenta, 2019. "Tariff Pass-through in Wholesaling: Evidence from Firm-level Data in Japan," Discussion papers 19064, Research Institute of Economy, Trade and Industry (RIETI).
    12. Lawrence Edwards & Zaakirah Ismail & Godfrey Kamutando & Simbarashe Mambara & Matthew Stern & Fouche, 2022. "TheconsumerpriceeffectsofspecifictradepolicyrestrictionsinSouthAfrica," Working Papers 11036, South African Reserve Bank.
    13. Pedro Moncarz & Sergio Barone & Germán Calfat & Ricardo Descalzi, 2017. "Poverty Impacts of Changes in the International Prices of Agricultural Commodities: Recent Evidence for Argentina (An Ex-Ante Analysis)," Journal of Development Studies, Taylor & Francis Journals, vol. 53(3), pages 375-395, March.
    14. Hayakawa, Kazunobu & Keola, Souknilanh & Sudsawasd, Sasatra & Yamanouchi, Kenta, 2022. "Impacts of an international bridge on households: Evidence from Thailand," Journal of Asian Economics, Elsevier, vol. 83(C).
    15. Antonio Martuscelli & Michael Gasiorek, 2019. "Regional Integration And Poverty: A Review Of The Transmission Channels And The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 431-457, April.
    16. Baek, Youngmin & Hayakawa, Kazunobu & Tsubota, Kenmei & Urata, Shujiro & Yamanouchi, Kenta, 2021. "Tariff Pass-through in Wholesaling: Evidence from Firm-level Data in Japan✰," Journal of the Japanese and International Economies, Elsevier, vol. 62(C).
    17. Muendler, Marc-Andreas, 2017. "Trade, technology, and prosperity: An account of evidence from a labor-market perspective," WTO Staff Working Papers ERSD-2017-15, World Trade Organization (WTO), Economic Research and Statistics Division.
    18. Lugo, María Ana & Garriga, Santiago & Puig, Jorge, 2022. "Effects of food prices on poverty: The case of Paraguay, a food exporter and a non-fully urbanized country," Revista Latinoamericana de Desarrollo Economico, Carrera de Economía de la Universidad Católica Boliviana (UCB) "San Pablo", issue 37, pages 7-43, Mayo.
    19. 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.
    20. 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.

    More about this item

    Keywords

    Biofuels; Distributional e?ects; Household welfare; Renewable Fuel Stan-dards; Poverty;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • 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:tut:cremwp:2016-13. 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: GERMAIN Lucie (email available below). General contact details of provider: https://edirc.repec.org/data/crmrefr.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.