Ethanol Production, Food and Forests

This paper investigates the direct and indirect impacts of ethanol production on land use, deforestation and food production. A partial equilibrium model of a national economy with two sectors and two regions, one of which includes a forest, is developed. It analyses how an exogenous increase in the ethanol price affects input allocation (land and labor) between sectors (energy crop and food). The total effect of ethanol prices on food production and deforestation is decomposed into three partial effects. First, the well-documented effect of direct land competition between rival uses arises; it increases deforestation and decreases food production. Second, an indirect displacement of food production across regions, possibly provoked by the reaction of international food prices, increases deforestation and reduces the food sector’s output. Finally, labor mobility between sectors and regions tends to decrease food production but also deforestation. The total impact of ethanol production on food production is negative while there is an ambiguous impact on deforestation.