The impacts of biofuels targets on land‐use change and food supply: A global CGE assessment

We analyze the long‐term impacts of large‐scale expansion of biofuels on land‐use change, food supply and prices, and the overall economy in various countries or regions using a multi‐country, multi‐sector global computable general equilibrium model augmented with an explicit land‐use module and detailed biofuel sectors. We find that an expansion of biofuel production to meet the existing or even higher targets in various countries would slightly reduce GDP at the global level but with mixed effects across countries or regions. Significant land re‐allocation would take place with notable decreases in forest and pasture lands in a few countries. The expansion of biofuels would cause a moderate decrease in world food supply and more significant decreases in developing countries like India and Sub‐Saharan Africa. Feedstock commodities (sugar, corn and oil seeds) would experience significant increases in their prices in 2020, but other price changes are small.     

Land use and economic effects of alternative biofuel policies in Brazil and the United States

Being the two largest ethanol producers in the world, biofuel policies in Brazil and the United States affect both their domestic markets and the global food and biofuel economy. In this article we develop a price endogenous mathematical programming model to simulate and analyze the impacts of biofuel mandates and trade distortions on land use, agricultural commodity and transportation fuel markets, and global environment. We find that an 80% increase in total biofuel production from its 103 billion liter baseline level to the mandated 183 billion liter level in 2022 can be achieved with less than 2% increase in total cropland use in both countries. In the United States, this would occur with cellulosic biofuels meeting nearly half of the biofuels consumed and produced largely on cropland pasture and corn ethanol meeting the rest of the mandate and resulting in a 2% increase in corn price. In Brazil, the expansion in sugarcane production would be achieved by reducing land under pasture and a marginal increase in intensification of livestock production. In the aggregate, biofuel policies increase economic surplus in both countries by 1% and redistribute the benefits from agricultural consumers to agricultural producers and the fuel sector. Finally, we also find that full implementation of the mandates in North America, China, and the European Union would reduce the global life‐cycle global greenhouse gas emissions by about 5%.     

The Impact of Biofuel Policies on Crop Acreages in Germany and France

A major concern about biofuels is that increasing biofuel feedstock demand reduces availability of crops for food and feed leading to higher food prices. This paper investigates relations between biofuel policies and prices of rapeseed, the major feedstock used for biodiesel production in Europe, and the impact of rapeseed prices on crop acreages in Germany and France. Biodiesel is an important biofuel in Europe, and Germany and France are the largest biodiesel producers in Europe. First, the various biofuel policies in Germany and France are discussed, followed by an analysis of their effects on rapeseed prices. Although theory indicates that such effects exist, we could not find empirical evidence for them. Second, using regional land use panel data from Germany and France we investigate empirically whether crop shares have been affected by rapeseed prices in the period 2000–2015 and whether these price effects changed because of biofuel policy changes. Results show that wheat shares in Germany and France did respond to rapeseed prices, but barley shares did not. Moreover, mandatory blending introduced in Germany in 2007 and production quotas introduced in France in 2005 led to a stronger effect of rapeseed prices on wheat shares, but again did not affect barley shares.     

Asymmetric price volatility transmission between food and energy markets: The case of Spain

The proportion of agricultural production that is being transformed into biofuels has been growing worldwide over the last decade. This has spurred the food versus fuel debate. This article aims at shedding light on this issue by studying price volatility relationships between food and biofuel prices in Spain. We use an asymmetric MGARCH model to evaluate volatility spillovers between the Spanish biodiesel blend and refined sunflower oil prices. Empirical results confirm that there are bidirectional and asymmetric volatility spillovers between these two prices.     

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’ In the last decade, there has been a huge policy‐led expansion in biofuels production and consumption. This paper presents some of the findings of a funded research project which has sought to identify the drivers of biofuels policies over this period. It focuses on the EU, US and Brazil which, together, represent about 90 per cent of global biofuels markets. Biofuels policies have three key drivers: as a partial substitute for fossil fuels, to lower greenhouse gas emissions; as a way of improving energy security, by diversifying away from fossil fuels and from the limited number of countries with fossil‐fuel reserves; and as a means of promoting rural development, given the opportunities offered by the production of biofuel feedstocks and their processing into biofuels. One particular challenge for both the EU and US has been to create and sustain a broad coalition of stakeholder interests in support of biofuels and biofuel policies. Both have sought to promote ‘conventional’ biofuels now, whilst trying to aid the development of ‘advanced’ biofuels industries that will address problems with existing technologies. The continued failure to deliver significant quantities of advanced biofuels raises questions for biofuels policymakers going forward, not least dealing with the downsides of conventional biofuels that, so far, have not been mitigated by a successful transition to advanced biofuels.     

Competition for land in the global bioeconomy

The global land use implications of biofuel expansion have received considerable attention in the literature over the past decade. Model‐based estimates of the emissions from cropland expansion have been used to assess the environmental impacts of biofuel policies. And integrated assessment models have estimated the potential for biofuels to contribute to greenhouse gas (GHG) abatement over the coming century. All of these studies feature, explicitly or implicitly, competition between biofuel feed stocks and other land uses. However, the economic mechanisms governing this competition, as well as the contribution of biofuels to global land use change, have not received the close scrutiny that they deserve. The purpose of this article is to offer a deeper look at these factors. We begin with a comparative static analysis which assesses the impact of exogenously specified forecasts of biofuel expansion over the period: 2006–2035. Global land use change is decomposed according to the three key margins of economic response: extensive supply, intensive supply, and demand. Under the International Energy Agency's “New Policies” scenario, biofuels account for nearly one‐fifth of global land use change over the 2006–2035 period. The article also offers a comparative dynamic analysis which determines the optimal path for first and second generation biofuels over the course of the entire 21st century. In the absence of GHG regulation, the welfare‐maximizing path for global land use, in the face of 3% annual growth in oil prices, allocates 225 Mha to biofuel feed stocks by 2100, with the associated biofuels accounting for about 30% of global liquid fuel consumption. This area expansion is somewhat diminished by expected climate change impacts on agriculture, while it is significantly increased by an aggressive GHG emissions target and by advances in conversion efficiency of second generation biofuels.     

The linkage between the U.S. ethanol market and developing countries’ maize prices: a panel SVAR analysis

The major expansion of U.S. ethanol production raises concerns about the potential detrimental impacts on developing countries’ agricultural prices, farm income, and food security. To assess the sensitivity of maize prices to ethanol production, this study explores the linkage between the U.S. ethanol market and developing countries’ maize prices. The econometric approach, based on a panel structural vector autoregression model, captures market interdependencies and the likelihood that developing countries’ responses are both heterogeneous and dynamic. The results indicate that the U.S. ethanol market's impacts on maize prices in developing countries are heterogeneous and that coastal countries are more susceptible to U.S. economic shocks. The estimates also suggest that countries more dependent on food imports and/or receiving U.S. food aid are at a higher risk of being affected by such shocks. Overall, the results indicate that those countries with the greatest sensitivity and exposure to global agricultural commodity markets could benefit from domestic policies and international assistance, which reduce their exposure to impacts from the U.S. maize market.     

Implications of biofuels mandates for the global livestock industry: a computable general equilibrium analysis

The rapid growth of biofuels production, particularly in the United States, the EU, and Brazil, has had important implications for the global livestock industry—both by raising the cost of feed grains and oilseeds and by forcing onto the market a large supply of biofuel by‐products, most of which end up in livestock feed rations. This article investigates the impact of an expanding biofuels industry on the mix and location of global livestock production. Surprisingly, we find that growth in the U.S. and EU biofuels industries results in larger absolute reductions in livestock production overseas than in those regions, due to the international transmission of grains prices which is offset locally by the lower cost of by‐products. We also find that nonruminant production is cut more than ruminant livestock, because it is less able to use biofuel by‐products in its feed rations. Implementing biofuel mandates increases cropland area, a large portion of which is estimated to come from reduced grazing lands. The biofuel producing regions are expected to reduce their coarse grains exports and increase imports of oilseeds and vegetable oils, while they increase their exports of processed feed materials. In sum, biofuel mandates have important consequences for livestock as well as crops, with net effects influenced by the important role of by‐products in substituting for feedstuffs.     

Leveling the field for biofuels: comparing the economic and environmental impacts of biofuel and other export crops in Malawi

Biofuels often raise the specter of food insecurity, water resource depletion, and greenhouse gas emissions from land clearing. These concerns underpin the “sustainability criteria” governing access to European biofuel markets. However, it is unclear if producing biofuels in low‐income countries does exacerbate poverty and food insecurity, and moreover, whether the sustainability criteria should apply to all agricultural exports entering European markets. We develop an integrated modeling framework to simultaneously assess the economic and environmental impacts of producing biofuels in Malawi. We incorporate the effects of land use change on crop water use, and the opportunity costs of using scarce resources for biofuels instead of other crops. We find that biofuel production reduces poverty and food insecurity by raising household incomes. Irrigated outgrower schemes, rather than estate farms, lead to better economic outcomes, fewer emissions, and similar water requirements. Nevertheless, to gain access to European markets, Malawi would need to reduce emissions from ethanol plants. We find that biofuels’ economic and emissions outcomes are generally preferable to tobacco or soybeans. We conclude that the sustainability criteria encourage more sustainable biofuel production in countries like Malawi, but are perhaps overly biased against biofuels since other export crops raise similar concerns about food security and environmental impacts.     

Post–Uruguay Round price linkages between developed and developing countries: the case of rice and wheat markets

The Uruguay Round Agreement on agriculture attempted to lower distortions in global agricultural markets. However, the significant fall in commodity prices in the late 1990s may have reduced the incentives for both developed and developing countries to better integrate into world markets. This study analyzes price linkages and adjustment between developed and developing countries during the post–Uruguay Round period. Prices of two key commodities, long‐grain rice and medium‐hard wheat, are assembled for major exporters and producers. Results of multivariate cointegration analysis suggest partial market integration between developed and developing countries in the post–Uruguay Round period. Developed countries are found to be price leaders in these two markets, and in most cases, changes in their prices have relatively large impacts on those of the developing countries. Developing countries (e.g., Vietnam and Argentina) have faced considerable price adjustment due to changes in the developed countries' prices.     

Biofuels and developing economies: is the timing right?

In this article, we discuss some key aspects of biofuel production in developing countries, and where constraints and tradeoffs are likely to occur. We use the example of two countries, Senegal and India, to highlight some of the issues of cost competitiveness, problems with ensuring stable supply of feedstock as well as critical missing links in the biofuels value chain that pose problems to scaling up national programs in these countries. We discuss the particularly problematic nature of jatropha, as a biodiesel feedstock, and underline some helpful guiding principles that can help country‐level policy. We point to an underlying “duality” between a well‐functioning food system and favorable conditions for agribusiness enterprises, such as biofuels, and the relevance it has to achieving food security goals.     

High food commodity prices: will they stay? who will pay?

Much of the public discussion of the food price crisis has focused on the sharply increased use of food commodities for biofuel production, framing debate in simple food versus fuel terms. Reality is more complex. Multiple forces drove food prices to high levels and, according to findings we report in this article, these forces will sustain high prices over the medium term. We also find that the distinction between high world prices for food commodities and the consumer costs of food is an important one to make. Food consumers do not buy raw food commodities at international prices. The degree to which the price of traded food commodities and the price of food are related depends on a long list of factors, most of which operate to dampen price transmission. In the search for appropriate policy response, it is essential to measure consumer effects correctly and to apportion properly the causes of current high prices.     

Effect of soil heterogeneity on the welfare economics of biofuel policies

Biofuel policies (blend mandate or tax credit) have impacts on food and energy prices, and on land-use. The magnitude of these effects depends on the market response to price, and thus on the agricultural supply curve, which, in turn, depends on the land availability (quantity and agronomic quality) and relative prices. To understand these relationships, we develop a theoretical framework with an explicit representation of land heterogeneity. The elasticity of the supply curve is shown to be non-constant, depending on land heterogeneity and the availability of land for agricultural expansion. This influences the welfare economics of biofuels policies, and the possible carbon leakage in land and fuel markets. We emphasize that the impacts of biofuel policies on welfare and land-use change depend strongly on the potential development of the agricultural sector in terms of expansion and intensification, and not only on its current size.     

Agricultural price distortions: trends and volatility,past, and prospective

Historically, earnings from farming in many developing countries have been depressed by a pro‐urban bias in own‐country policies, as well as by governments of richer countries favoring their farmers with import barriers and subsidies. Both sets of policies reduced global economic welfare and agricultural trade, and added to global inequality and poverty. Over the past three decades, much progress has been made in reducing agricultural protection in high‐income countries and agricultural disincentives in developing countries. However, plenty of price distortions remain. As well, the propensity of governments to insulate their domestic food market from fluctuations in international prices has not waned. Such insulation contributes to the amplification of international food price fluctuations, yet it does little to advance national food security when food‐importing and food‐exporting countries equally engage in insulating behavior. Thus there is still much scope to improve global economic welfare via multilateral agreement not only to remove remaining trade distortions but also to desist from varying trade barriers when international food prices gyrate. This article summarizes indicators of trends and fluctuations in farm trade barriers before examining unilateral or multilateral trade arrangements, together with complementary domestic measures, that could lead to better global food security outcomes.     

Fighting global food price rises in the developing world: the response of China and its effect on domestic and world markets

This article addresses how China is being affected by and is responding to the world food crisis. So far, Chinese officials have responded to higher world prices by drawing down stocks and limiting exports of major grains. These policy instruments were not available for soybeans, so domestic prices of soy and other oilseeds have risen with international prices. Using a global CGE model, we show that the initial world price rise was largely due to higher world oil prices and demand for biofuels as opposed to other factors, especially in maize and soybeans. China's response to this shock has kept domestic grain prices low relative to world grain markets and to domestic soybean prices. As grain stocks are depleted, however, demand growth will push domestic prices back into alignment. Anticipating this pressure on consumers and accelerating supply response through public investment will facilitate adjustment.     

International trade and agricultural development in developing countries: Significance of the Uruguay Round of GATT negotiations

Liberalization of world trade in agricultural products ranks high on the agenda of the Uruguay Round. After a period of more than six years, however, the negotiations have not been concluded. Nevertheless, an outcome seems to be in sight. The agreement will most likely not result in a move to freer trade. It seems that domestic policies will become even more regulative than in the past in an attempt to cut exportable surpluses and to ease trade tensions among the main exporting nations. This paper explores possible impacts of the GATT Round on agricultural development in developing countries. Agricultural development is more than only growth in agricultural production or productivity. However, it is argued in the paper that other variables which also indicate agricultural development are often closely correlated with growth in production and productivity. Trade in agricultural products is not always an engine for agricultural development. If internal divergences are not accounted for by appropriate domestic policies, trade may be even harmful to agricultural development. Hence, empirical research based on cross-country analysis does not provide a clear answer about the role of trade for development. Past policies in industrialized countries have most likely had a negative effect on developing countries as a group; however, the effects differ widely across countries. Liberalization policies in industrialized countries would not just reverse these negative effects for developing countries. Price reduction in industrialized countries may not result in the often-cited production decline in the short term. Present X-inefficiency in agriculture will be reduced by liberalization, leading to an outward shift of the supply curve. Hence, liberalization may not lead to higher world market prices for temperate-zone products in the short and medium term. Apart from this, empirical models differ widely in the price effects they predict. The expected outcome of the Uruguay Round – increased regulation of domestic policies – is likely both more negative for developing countries than past protectionist policies and worse than an overall liberalization. World market prices will increase, uncertainty and instability can be expected to grow, and food aid may become less available. There will be a need to react to these challenges with measures on the international and national level. Initiatives to deal with food crises in developing countries and to stimulate liberalization in developing countries should be considered. Finally, developing countries should be made aware that their own domestic policies have a much greater economic impact than policies in other countries, even if the latter are as protectionist as current agricultural policies in the industrialized world.     

Will cotton make a comeback in Mali?

With the decline of cotton especially in the marginal cotton areas, farmers have been using more of the cotton‐financed inputs on the cereals. The cotton para‐statal company (CMDT) has made a virtue out of this recommending diversification for these regions. Following the world price spike in 2010, the Malian government responded with a substantial price increase for cotton in 2011 of 38% to rejuvenate the Malian sector. This article looks at the impact of this price policy in the cotton economy and the potential of new cereal technology and marketing strategy to raise incomes and facilitate the diversification. Given the importance of the marketing decision of selling later after the recovery of cereal prices from the harvest collapse, a discrete stochastic programming model was developed for three‐stage decision making. Then, the recent changes in the cotton economy and government fertilizer subsidies were analyzed along with the introduction of the new technology marketing of sorghum. Cotton and maize continue to dominate the economy but the combined sorghum technology marketing increases farmers’ incomes by 16% to 21% and eases the return to normal cotton prices, after the 2011 price spike, as well as the removal of the fertilizer subsidies.     

Impact and implications of price policy and land degradation on agricultural growth in developing countries

In many developing countries, a high proportion of the population resides and works in rural areas. Agriculture is the dominant sector in rural areas and has the greatest concentration of poverty: landless workers, small tenant farmers, and small farm owners. Thus, any development strategy that is directed towards increasing employment and alleviating a country's hunger must concentrate on sustainable agricultural growth. Historically, economic development in most countries has been based on exploitation of natural resources, particularly land resources. Soil erosion and land degradation have been serious worldwide. Due to reasons such as high population pressure on land and limited fossil energy supplies, land degradation is generally more serious in the developing world. Empirical studies show that soil erosion and degradation of agricultural land not only decrease the land productivity but they can also result in major downstream or off-site damage which may be several times that of on-site damage. In promoting industrialization, governments of many developing countries adopt a package of price and other policies that reduce agricultural production incentives and encourage a flow of resources out of agriculture. Increasing evidence shows that these policies cause a substantial efficiency or social welfare loss, and a great loss in foreign exchange earnings. In addition, a World Bank study on the effect of price distortions on economic growth rates concluded that neither rich resource endowments, nor a high stage of economic development, nor privatization are able to make up the adverse effects caused by high price distortions. This analysis is primarily concerned with identifying the factors that determine the agricultural production growth rate and in testing the effects these factors have on agricultural growth in developing countries. Specifically, this study involves statistical estimation of an aggregate agricultural growth function based on cross-country data for 28 developing countries. Special attention is devoted to land degradation and agricultural pricing policy, and to the policy implications resulting from the effects these variables have on agricultural and food production growth. The overall results of this study show that price distortions in the economy and land degradation had statistically significant negative impacts while the change in arable and permanent land was positively related to the growth of agricultural production and food production in 28 developing countries from 1971 to 1980. These results emphasize the importance of ‘getting prices right’ and implementation of sustainable land and water management practices if future growth in food and agricultural output is to be realized and sustained in developing countries.     

The Economics of a Blend Mandate for Biofuels

A biofuel blend mandate may increase or decrease consumer fuel prices with endogenous oil prices, depending on relative supply elasticities. Biofuel tax credits always reduce fuel prices. Tax credits result in lower fuel prices than under a mandate for the same level of biofuel production. If tax credits are implemented alongside mandates, then tax credits subsidize fuel consumption instead of biofuels. This contradicts energy policy goals by increasing oil dependency, CO₂ emissions, and traffic congestion, while providing little benefit to either corn or ethanol producers. These social costs will be substantial with tax credits costing taxpayers $28.7 billion annually by 2022.     

Biofuels and ecoagriculture: can bioenergy production enhance landscape-scale ecosystem conservation and rural livelihoods?

Global development of the biofuel sector is proceeding rapidly, driven by national policy mandates, government subsidies, and profit opportunities for farmers, agribusiness and energy companies. To date, most investment in—and dialogue on—biofuels has focused on large-scale production of liquid transport fuels. A smaller set of efforts has explored the potential of biofuels to promote rural development by reducing energy poverty among the world's two billion poorest people. Here, we consider the potential of these diverse approaches to promote the goals of ecoagriculture: namely, sustainable agricultural production (including biofuel feedstocks), conservation of biodiversity and ecosystem services and viable rural livelihoods. Using a landscape planning framework, we review empirical evidence and identify criteria for designing biofuel production systems that promote this trio of goals. Biofuel development has the greatest potential when biomass production is an ‘interstitial’ activity and when processing and use occurs at the local level. Larger scale production for regional or global liquid fuel markets may be beneficial under some circumstances, but a stronger policy framework is needed to guide this approach. To advance biofuels for sustainable development, while avoiding serious risks, investment must shift to include a variety of ecoagriculture-compatible pathways. Supportive public policies and market incentives must be developed before the biofuel sector develops strong path-dependence toward unsustainable outcomes.