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

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2009-03-01
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Fabiosa, Jacinto
Dong, Fengxia
Tokgoz, Simla
Yu, Tun-Hsiang (Edward)
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Beghin, John
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Elobeid, Amani
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Center for Agricultural and Rural Development

The Center for Agricultural and Rural Development (CARD) conducts innovative public policy and economic research on agricultural, environmental, and food issues. CARD uniquely combines academic excellence with engagement and anticipatory thinking to inform and benefit society.

CARD researchers develop and apply economic theory, quantitative methods, and interdisciplinary approaches to create relevant knowledge. Communication efforts target state and federal policymakers; the research community; agricultural, food, and environmental groups; individual decision-makers; and international audiences.

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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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