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Impacts of Ethanol on Planted Acreage in Market Equilibrium

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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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 08-wp472.

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Date of creation: Jun 2008
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Handle: RePEc:ias:cpaper:08-wp472
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  1. 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.
  2. 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.
  3. David A. Hennessy, 2006. "On Monoculture and the Structure of Crop Rotations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 900-914.
  4. 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.
  5. 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.
  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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