Mitigating Land Use Changes From Biofuel Expansion: An Assessment of Biofuel Feedstock Yield Potential in APEC Economies

The emerging biofuel sector has drawn great interest as an alternative source of fuel for transportation. The expansion of biofuels greatly impacts world agricultural markets, since currently, the primary feedstocks for ethanol and biodiesel production are field crops and their derived products. There is great interest in the potential of countries to expand their biofuel sectors through increased production of feedstocks. The long-term potential for developing first-generation biofuels in many countries depends on a large and constant supply of feedstocks. This may be achieved in two ways: land extensification and/or land intensification. However, expansion of land area comes with a number of environmental challenges highlighted by the recent debate on indirect land use change brought about by biofuel expansion (Searchinger et al., 2008; Fargione et al., 2008). Therefore, land intensification through yield growth, and production of second-generation biofuel feedstocks, such as crop residues and perennial grass on marginal land, are generally seen as critical factors for sustainable development of biofuels as well as mitigation of land use changes. In this context, it is essential to gain a better understanding of the yield trends and the future yield potential of biofuel feedstocks to help determine the impact of biofuel expansion on agricultural markets. Therefore, the aim of this analysis is to review and analyze historical and projected trends of crop yields, particularly for crops used in biofuel production. One of our major interests is the impact of crop prices on yields in the long run, given that the increased production of biofuels from crops has created a perceived permanent increase in crop prices. Based on this analysis, we draw conclusions regarding the yield potential of biofuel feedstocks. We focus our analysis on APEC economies because of their rapidly growing interest in biofuel development and the diversified agricultural production among member countries. Comparing average annual growth in crop yields across APEC economies and across crops, we find that the crop yield growth rates vary significantly. Corn ranks among the crops with the largest yield improvement in a significant number of the APEC economies, mostly due to increased fertilizer use and biotechnology. The analysis also reveals that sugarcane yields have been fairly stable with the exception of significant growth in China, Philippines and Thailand. One of the highest soybean yields is seen in the United States, which is a major producer. Soybean yields in China and Indonesia are lower relative to the United States, but show much lower variability over time. In the past decade, palm oil yields have increased dramatically in Indonesia. Further analysis reveals that an economy, like the United States, which already has high yield levels for the majority of crops, experiences relatively lower yield growth rates relative to other economies. On the other hand, economies like Philippines and Malaysia have relatively lower corn yields but high yield growth rates, which indicate a higher potential for increasing crop production through yield increases rather than land expansion. Yield growth rates for most crops in most APEC economies fall in the lower to medium range although there is significant variance in yields among the economies. This variation could be due to the fact that some economies have adopted mechanization and new technologies in their crop production, whereas other economies rely heavily on labor and basic inputs. Hence, economies with high technical advantage have the potential to improve crop yields by continuous development in biotechnology. In contrast, economies with less technological resources may enhance crop yields through increasing input utilization including more capital intensive inputs. We also compute yield elasticities with respect to a time trend variable for the major crops in APEC economies. For most but not all APEC economies, the coefficient estimates are statistically significant. There is wide variation in the magnitude of the elasticities among economies and crops, some even with a negative elasticity. When comparing among crops, we see that corn yields show relatively higher elasticities with respect to time trend. Across APEC economies, China shows consistent yield response over time for all crops. Across crops, sorghum has the highest elasticity in China, corn in the Philippines, sugar beet in Canada, wheat in New Zealand, rice in Indonesia, and sugarcane in Malaysia. In addition to the increased production in primary crops, yield growth would also translate to an increase in available crop residues. According to Milbrandt and Overend (2008), ethanol from currently available crop residues could potentially displace about 33% of gasoline consumption in the APEC region, assuming that cost-competitive technologies for production of ethanol from second-generation lignocellulosic feedstocks can be deployed. Thus, given average yield growth projections for certain crops in APEC economies, our calculations show that the United States could potentially displace an additional 2% of gasoline from corn residue, Australia an additional 9% of gasoline from wheat residue, and Thailand an additional 3.5% from sugarcane residue, without increasing land for biofuel production. The analysis concludes that in terms of first-generation biofuels, yield growth is imperative for the long-term potential of biofuel expansion if land extensification is to be minimized. Biofuel expansion may imply increased land use for feedstock production in the medium term, but growth in feedstock yields will tend to mitigate the impact on crop prices and land use over the longer term. Additionally, long-term expansion of biofuels may have to rely on the economic viability of production from lignocellulosic feedstocks. Based on the data analysis, APEC economies have the capability and the capacity to increase feedstock yields for biofuel production, particularly the economies that have relatively lower yield levels and are further away from their yield plateau levels. However, this requires targeting yield-enhancing activities including investments in agricultural R&D, better farm practices, and increased input use. Some of the practices that already have resulted in yield improvements in some countries, such as extension services and fertilizer subsidies, could be transferred to other economies. Countries could also provide incentives, such as tax reductions or government payments, which have proven to be successful in inducing farmers to invest in yield-improving technologies. However, it is crucial that each economy should identify its own advantage in terms of productivity improvements for its agricultural commodities. To achieve yield growth, countries should create an environment conducive to technological change and diffusion of new technology through public R&D and incentives for private R&D investments. References: Fargione, J., J. Hill, D. Tilman, S. Polasky, and P. Hawthorne. 2008. “Land Clearing and the Biofuel Carbon Debt”, Science, February 29: 1235-1238. Milbrandt, A. and R.P. Overend. 2008. “Survey of Biomass Resource Assessments and Assessment Capabilities in APEC Economies.” Energy Working Group, Asia-Pacific Economic Cooperation, APEC# 208-RE-01.9. Searchinger, T., R. Heimlich, R. Houghton, F. Dong, A. Elobeid, J. F. Fabiosa, S. Tokgoz, D. J. Hayes, T. Yu. 2008. “Factoring Greenhouse Gas Emissions from Land Use Change into Biofuel Calculations”, Science, February 29:1238-1240.