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The Impact of US Biofuel Policies on Agricultural Price Levels and Volatility

The Impact of US Biofuel Policies on Agricultural Price Levels and Volatility

Full Title:  The Impact of US Biofuel Policies on Agricultural Price Levels and Volatility
Author(s):  Bruce A. Babcock
Publisher(s):  International Center for Trade and Sustainable Development
Publication Date: June 1, 2011
Full Text: Download Resource
Description (excerpt):

This report makes three contributions to understanding the extent to which US biofuel policies contribute to higher agricultural and food prices. First, estimates of the impact of US ethanol policies on crop and food prices are made for the 2005 through 2009 US crop marketing years. These estimates are made by “backcasting” what prices would have been had the subsidies not existed over this period. A comparison of the new equilibrium prices and quantities with what actually occurred reveals that the impacts of these subsidies were quite modest. The largest impact of subsidies occurred in the 2007 marketing year when maize prices would have been $0.30 per bushel (7.1 percent) lower than they actually were. This is a modest impact because the average maize price in 2007 was more than $2.00 per bushel higher than the average price in 2004 or 2005. This implies that ethanol subsidies have not been the major driver of higher commodity prices. The effects of US ethanol subsidies on the prices of wheat, rice and soybeans were even smaller, with a 2.8 percent price impact on soybeans in 2008 being the largest impact on these other crops. The impact of US ethanol policies through higher feed costs on consumer prices of eggs, beef, pork and broilers was even smaller. The largest impact on any of these products was a two-cent-per-dozen (1.1 percent) increase in egg prices. All other product prices were impacted by much less than 1 percent. These results indicate that US ethanol subsidies during this period had little impact on consumer prices and quite modest impacts on crop prices. However, these results do not imply that market-driven expansion of ethanol did not have an impact on agricultural or food prices.

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