Abstract
The last 10 years have seen tremendous expansion in biofuels production, particularly in corn ethanol in the United States, at the same time that commodity prices (e.g., corn) have experienced significant spikes. While supporters claim that biofuels are renewable and carbon-friendly, concerns have been raised about their impacts on land use and food prices. This paper analyzes how US crop prices have responded to shocks in acreage supply; these shocks can be thought of as a shock to the residual supply of corn for food. Using a structural vector auto-regression framework, we examine shocks to a crop’s own acreage and to total cropland. This allows us to estimate the effect of dedicating cropland or non-crop farmlands to biofuels feedstock production. A negative shock in own acreage leads to an increase in price for soybeans and corn. Our calculations show that increased corn ethanol production during the boom production year 2006/2007 explains approximately 27% of the experienced corn price rise.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Abbott PC, Hurt C, Tyner WE (2008) What’s driving food prices? Farm foundation issue report
Ando AW, Khanna M, Taheripour F (2010) Market and social welfare effects of the renewable fuels standard. Handb Bioenergy Econ Policy Nat Resour Manag Policy 33(4): 233–250
Banse M, van Meijl H, Tabeau A, Woltjer G (2008) Will EU biofuel policies affect global agricultural markets?. Eur Rev Agric Econ 35(2): 117–141
BBC (2007) Will biofuel leave the poor hungry? http://news.bbc.co.uk/2/hi/business/7026105.stm
Cha KS, Bae JH (2011) Dynamic impacts of high oil prices on the bioethanol and feedstock markets. Energy Policy 39(2): 753–760
Chakravorty U, Hubert M, Moreaux M, Nostbakken L (2011) Will biofuel mandates raise food prices? Working paper no. 2011–01, Department of Economics, University of Alberta
Chakravorty U, Hubert M, Nostbakken L (2009) Fuel versus food. Annu Rev Resour Econ 1: 645–663
Christiano LJ, Eichenbaum M, Evans CL (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. J Polit Econ 113(1): 1–45
Commodity Research Bureau, Inc. (1964, 1972, 1982, 1992) Commodity year book. Commodity Research Bureau, Inc. New York
Congressional Budget Office (2009) The impact of ethanol use on food prices and greenhouse-gas emissions. Congress of the United States Congressional Budget Office pub. no. 3155
Headey D, Fan S (2008) Anatomy of a crisis: the causes and consequences of surging food prices. Agric Econ 39(Issue Supplement s1): 375–391
Hill J, Nelson E, Tilman D, Polasky S, Tiffany D (2006) Environmental, economic, and energetic costs and benefits of biodiesel and ethanol biofuels. Proc Natl Acad Sci 103(30): 11206–11210
Khanna M, Ando AW, Taheripour F (2008) Welfare effects and unintended consequences of ethanol subsidies. Rev Agric Econ 30(3): 411–421
Lutkepohl H (1993) Introduction to multiple time series analysis. Springer, Berlin
McPhail LL (2011) Assessing the impact of US ethanol on fossil fuel markets: a structural VAR approach. Energy Econ 33(6): 1177–1185
Mitchell D (2008) A note on rising food prices. World Bank Policy Research working paper no. 4682
Mushtaq K, Dawson PJ (2002) Acreage response in Pakistan: a co-integration approach. Agric Econ 27(2): 111–121
National Agricultural Statistics Service (NASS). (1999, 2005, 2009) Agricultural Statistics. U.S. Government Printing Office, Washington, DC
Naylor RL, Liska AJ, Burke MB, Falcon WP, Gaskell JC, Rozell SD, Cassman KG (2007) The ripple effect: biofuels, food security, and the environment. Environment 49(9): 30–43
Nerlove M (1956) Estimates of the elasticities of supply of selected agricultural commodities. J Farm Econ 38(2): 496–509
Rajagopal D, Sexton SE, Roland-Holst D, Zilberman D (2007) Challenge of biofuel: filling the tank without emptying the stomach?. Environ Res Lett 2(4): 1–9
Roberts MJ, Schlenker W (2010) Identifying supply and demand elasticities of agricultural commodities: implications for the US ethanol mandate. NBER working paper no. 15921
Robertson GP, Dale VH, Doering OC, Hamburg SP, Melillo JM, Wander MM, Parton WJ, Adler PR, Barney JN, Cruse RM, Duke CS, Fearnside PM, Follett RF, Gibbs HK, Goldemberg J, Mladenoff DJ, Ojima D, Palmer MW, Sharpley A, Wallace L, Weathers KC, Wiens JA, Wilhelm WW (2008) Sustainable biofuels redux. Science 322(5898): 49–50
Rosegrant MW (2008) Biofuels and grain prices: impacts and policy response. Testimony for the US Senate Committee on Homeland Security and Governmental Affairs, May 7, 2008
Runge CF, Senauer B (2007) How biofuels could starve the poor. Foreign Aff 86(3): 41–53
Sexton S, Rajagopal D, Zilberman D, Hochman G (2008) Food versus fuel: how biofuels make food more costly and gasoline cheaper. Agric Resour Econ Updat 12(1): 1–6
Stock JH, Watson MW (2002) Forecasting using principal components from a large number of predictors. J Am Stat Assoc 97(460): 1167–1179
Zhang Z, Vedenov D, Wetzstein M (2007) Can the US ethanol industry compete in the alternative fuels market?. Agric Econ 37(1): 105–112
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Hausman, C., Auffhammer, M. & Berck, P. Farm Acreage Shocks and Crop Prices: An SVAR Approach to Understanding the Impacts of Biofuels. Environ Resource Econ 53, 117–136 (2012). https://doi.org/10.1007/s10640-012-9550-x
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10640-012-9550-x