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Land Allocation Effects of the Global Ethanol Surge: Predictions from the International FAPRI Model

We quantify the emergence of biofuel markets and its impact on U.S. and world agriculture for the coming decade using the multi-market, multi-commodity international FAPRI (Food and Agricultural Policy Research Institute) model. The model incorporates the trade-offs between biofuel, feed, and food production and consumption and international feedback effects of the emergence through world commodity prices and trade. We examine land allocation by type of crop, and pasture use for countries growing feedstock for ethanol (corn, sorghum, wheat, sugarcane, and other grains) and major crops competing with feedstock for land resources such as oilseeds. We shock the model with exogenous changes in ethanol demand, first in the United States, then in Brazil, China, the European Union-25, and India, and compute shock multipliers for land allocation decisions for crops and countries of interest. The multipliers show at the margin how sensitive land allocation is to the growing demand for ethanol. Land moves away from major crops and pasture competing for resources with feedstock crops. Because of the high U.S. tariff on ethanol, higher U.S. demand for ethanol translates into a U.S. ethanol production expansion. The latter has global effects on land allocation as higher coarse grain prices transmit worldwide. Changes in U.S. coarse grain prices also affect U.S. wheat and oilseed prices, which are all transmitted to world markets. In contrast, expansion in Brazil ethanol use and production chiefly affects land used for sugarcane production in Brazil and to a lesser extent in other sugar-producing countries, but with small impacts on other land uses in most countries.

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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 09-wp488.

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Date of creation: Mar 2009
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Handle: RePEc:ias:cpaper:09-wp488
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  1. Uwe A. Schneider & Bruce A. McCarl, 2001. "Economic Potential of Biomass-Based Fuels for Greenhouse Gas Emission Mitigation," Center for Agricultural and Rural Development (CARD) Publications 01-wp280, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. English, Burton C. & Torre Ugarte, Daniel de la & Walsh, Marie E. & Hellwinckel, Chad M. & Menard, R. Jamey, 2006. "Economic Competitiveness of Bioenergy Production and Effects on Agriculture of the Southern Region," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(02), August.
  3. Simla Tokgoz & Amani Elobeid, 2006. "Analysis of the Link between Ethanol, Energy, and Crop Markets, An," Center for Agricultural and Rural Development (CARD) Publications 06-wp435, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  4. Hallam, Arne & Anderson, I. C. & Buxton, D. R., 2001. "Comparative Economic Analysis of Perennial, Annual and Intercrops for Biomass Production," Staff General Research Papers 5076, Iowa State University, Department of Economics.
  5. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Center for Agricultural and Rural Development (CARD) Publications 06-bp49, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  6. Beghin, John C. & Dong, Fengxia & Elobeid, Amani E. & Fabiosa, Jacinto F. & Fuller, Frank H. & Hart, Chad E. & Kovarik, Karen & Tokgoz, Simla & Yu, Tun-Hsiang (Edward) & Wailes, Eric J. & Chavez, Eddi, 2007. "FAPRI 2007 U.S. and World Agricultural Outlook," Staff Reports 7296, Food and Agricultural Policy Research Institute (FAPRI).
  7. Amani Elobeid & Simla Tokgoz, 2006. "Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets," Food and Agricultural Policy Research Institute (FAPRI) Publications 06-wp427, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  8. Torre Ugarte, Daniel de la & Walsh, Marie E. & Shapouri, Hosein & Slinsky, Stephen P., 2003. "The Economic Impacts of Bioenergy Crop Production on U.S. Crop Production," Agricultural Economics Reports 33997, United States Department of Agriculture, Economic Research Service.
  9. Gallagher, Paul W. & Otto, Daniel & Dikeman, Mike, 2000. "Effects of an Oxygen Requirement for Fuel in Midwest Ethanol Markets and Local Economies," Staff General Research Papers 5244, Iowa State University, Department of Economics.
  10. David Pearce, 2003. "The Social Cost of Carbon and its Policy Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 362-384.
  11. Simla Tokgoz & Amani Elobeid & Jacinto F. Fabiosa & Dermot J. Hayes & Bruce A. Babcock & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart & John C. Beghin, 2007. "Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets," Food and Agricultural Policy Research Institute (FAPRI) Publications 07-sr101, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  12. Silvia Secchi & Bruce A. Babcock, 2007. "Impact of High Crop Prices on Environmental Quality: A Case of Iowa and the Conservation Reserve Program," Center for Agricultural and Rural Development (CARD) Publications 07-wp447, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  13. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some long-run effects of growing markets and renewable fuel standards on additives markets and the US ethanol industry," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 585-608, September.
  14. Babcock, Bruce A. & Beghin, John C. & Fuller, Frank H. & Mohanty, Samarendu & Fabiosa, Jacinto F. & Kaus, Phillip J. & Fang, Cheng & Hart, Chad E. & Matthey, Holger & de Cara, Stephane & Kovarik, Kare, 2001. "FAPRI 2001 U.S. and World Agricultural Outlook," Staff Reports 32052, Food and Agricultural Policy Research Institute (FAPRI).
  15. Popp, Michael P. & Hogan, Robert J., Jr., 2007. "Assessment of two alternative switchgrass harvest and transport methods," Biofuels, Food and Feed Tradeoffs, Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 48774, Farm Foundation.
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