Biofuels Impact on Crop and Food Prices: Using an Interactive Spreadsheet

37 Pages Posted: 3 Apr 2009

See all articles by Scott L. Baier

Scott L. Baier

Clemson University - John E. Walker Department of Economics

Mark Clements

Federal Reserve Board - Trade and Financial Studies

Charles W. Griffiths

U.S. Environmental Protection Agency (1809T)

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions

Date Written: March 25, 2009

Abstract

This paper examines the effect that biofuels production has had on commodity and global food prices. The innovative contribution of this paper is the interactive spreadsheet that allows the reader to choose the assumptions behind the estimates. By allowing the reader to choose the country, time period, supply and demand elasticities, and the size of indirect effects we explicitly illustrate the sensitivity of the estimated effect of biofuels production on prices. Our best estimates suggest that the increase in biofuels production over the past two years has had a sizeable impact on corn, sugar, barley and soybean prices, but a much smaller impact on global food prices. Over the past two years (ending June 2008), we estimate that the increase in worldwide biofuels production pushed up corn, soybean and sugar prices by 27, 21 and 12 percentage points respectively. The countries that account for most of the upward pressure on these prices are the United States and Brazil. Our best estimates suggest that the increase in U.S. biofuels production (ethanol and biodiesel) pushed up corn prices by more than 22 percentage points and soybean prices (soybeans and soybean oil) by more than 15 percentage points, while the increase in EU biofuels production pushed corn and soybean prices up around 3 percentage points. Brazil's increase in sugar-based ethanol production accounts for the entire rise in the price of sugar. Although biofuels had a noticeable impact on individual crop prices, they had a much smaller impact on global food prices. Our best estimate suggests that the increase in worldwide biofuels production over the past two years accounts for just over 12 percent of the rise in the IMF's food price index. The increase in U.S. biofuels production accounts for roughly 60 percent of this effect, while Brazil accounts for 14 percent and the EU accounts for 15 percent. The key take-away point is that nearly 90 percent of the rise in global food prices comes from factors other than biofuels.

Keywords: Biofuels, ethanol, commodity prices, food prices

JEL Classification: E31, Q42, Q11

Suggested Citation

Baier, Scott Leonard and Clements, Mark and Griffiths, Charles W. and Ihrig, Jane E., Biofuels Impact on Crop and Food Prices: Using an Interactive Spreadsheet (March 25, 2009). FRB International Finance Discussion Paper No. 967. Available at SSRN: https://ssrn.com/abstract=1372839 or http://dx.doi.org/10.2139/ssrn.1372839

Scott Leonard Baier (Contact Author)

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States
864-656-4534 (Phone)

Mark Clements

Federal Reserve Board - Trade and Financial Studies ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Charles W. Griffiths

U.S. Environmental Protection Agency (1809T) ( email )

National Center for Environmental Economics
1200 Pennsylvania Ave., NW
Washington, DC 20460
United States
202-566-2288 (Phone)
202-566-2338 (Fax)

Jane E. Ihrig

Federal Reserve Board - International Financial Transactions ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-3372 (Phone)
202-736-5638 (Fax)

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