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Food for Fuel: The Effect of the U.S. Biofuel Mandate on Poverty in India

Author

Listed:
  • Ujjayant Chakravorty

    (Department of Economics, Tufts University, USA)

  • Marie-Helene Hubert

    (CREM UMR CNRS 6211, University of Rennes 1, France)

  • Beyza Ural Marchand,

    (Department of Economics, University of Alberta, Canada)

Abstract

Many countries have adopted energy policies that promote biofuels as a substitute for gasoline in transportation. For instance, more than 40% of U.S. grain is now used for energy and this share is expected to rise under the current Renewable Fuels Mandate. This paper examines the distributional effects of this energy mandate on India using micro-level survey data. First, we use a model with endogenous land use to estimate the effect of the biofuel policy on the world price of selected food commodities - rice, wheat, sugar and meat and dairy, which together provide almost 70% of Indian food calories. Their world prices are predicted to increase between 5% and 11%. Uncertainty in model parameters is incorporated using Monte Carlo techniques that generate standard errors on these price predictions. The effect of these price increases on household welfare is then estimated using data on consumption and wage incomes. We estimate pass-through elasticities from time-series data then compute the negative consumption effects and positive wage impacts under perfect and imperfect pass-through from world to domestic prices. Under perfect pass-through, the mandate leads to a reduction in rural poverty by about 39 million people, and an increase in the number of urban poor by 4 million people. Under imperfect price pass-through, both rural and urban poverty increase by a total of 8 million people. Our study suggests that the US biofuel mandate may lead to modest increase in food prices, but have sizable global welfare impacts, which may differ across rural and urban households.

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  • Ujjayant Chakravorty & Marie-Helene Hubert & Beyza Ural Marchand,, 2015. "Food for Fuel: The Effect of the U.S. Biofuel Mandate on Poverty in India," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201501, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201501
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    3. Dalheimer, Bernhard & Herwartz, Helmut & Lange, Alexander, 2021. "The threat of oil market turmoils to food price stability in Sub-Saharan Africa," Energy Economics, Elsevier, vol. 93(C).

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    More about this item

    Keywords

    Biofuels; Food Prices; HouseholdWelfare; Renewable Fuel Standards; Poverty;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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