Local Agricultural Market Responses to Biofuel Demand: A Fine-Resolution Equilibrium Model Approach

To meet the growing demand of biofuels in the U.S., in particular, soybean-based diesel, soybean processing facilities have expanded, notably, into the Northern and Western U.S. in addition to the Heartland. Such geographic evolution has implications for rural economies, as proximity to crop processing plants can increase the local crop prices, expand cropland, and boost employment. Empirical studies have well documented these local responses, yet with limited consideration of national or global economy. Simulation-based studies, by contrast, have focused more on the national-level trends in land use changes and associated environmental impacts, but often ignore location-specific biofuel demand shocks. This study leverages the fine-resolution partial equilibrium model, SIMPLE-G, to bridge these two groups of studies by incorporating agricultural production and crop demand at a granular spatial scale, thus capturing heterogeneous responses in key outcomes, such as land use, crop production and land rents, while having global economy in the background. A preliminary experiment evaluates the impacts of soybean crushing expansion between 2017 and 2025. The results demonstrate the framework’s ability to incorporate location-specific crop demand changes and capture local market responses. The study will further explore implications for rural economies, environmental impacts, and the nuanced spatial assessment needed for policymakers to establish ecologically sound targets and safeguards for the expanding U.S. biofuel portfolio.