Energy security versus food security: An analysis of fuel ethanol- related markets using the spillover index and partial wavelet coherence approaches

The recent surge in biofuel production has caused concern about energy and food security. Most of the literature related to the “fuel vs. food” issue has paid close attention to futures markets, in which commodity price volatilities are greatly increased by the many non-commercial traders that are responsible for differences in price movements between financial and non-financial markets, such as retail, wholesale, and farm-gate markets. This analysis focused on the wholesale and producer prices of fuel ethanol, gasoline, and corn to analyze the interrelations among the three commodity markets from January 2001 to December 2020. We applied the spillover index and partial wavelet coherence methods, which have rarely been used in this research area, and obtained results that were largely consistent. Our primary findings are as follows: First, gasoline and ethanol price returns tend to be positively correlated with the corn price return in the short term. Second, the price return of gasoline is positively related to the corn price return in the medium and long terms, while the price return of ethanol is negatively related to the corn price return in the medium term. Finally, there is evidence that the price returns of gasoline positively lead the price return in all the frequency domains. The results suggest that while biofuel policy in the US enhances the country's energy independence, the strategy adversely affects the access, stability, and availability of the country's food security. The repeal of the US Energy Policy Act and Energy Independence and Security Act would bring about a double dividend: higher efficiency of resource allocation and improved food security.