The Economics of Biofuel Policies: Impacts on Price Volatility in Grain and Oilseed Markets

306 Pages·2015·1.337 MB·English

by  Harry de Gorter, Dusan Drabik, David R. Just (auth.)

THE ECONOMICS OF BIOFUEL
POLICIES
PALGRAVE STUDIES IN AGRICULTURAL
ECONOMICS AND FOOD POLICY
Series Editor: Christopher B. Barrett, Cornell University, USA.
Agricultural and food policy lies at the heart of many pressing societal issues today,
and economic analysis occupies a privileged place in contemporary policy debates.
The global food price crises of 2007–2008 and 2010–2011 underscored the mount-
ing challenge of meeting rapidly increasing food demand in the face of increasingly
scarce land and water resources. The twin scourges of poverty and hunger quickly
resurfaced as high-level policy concerns, partly because of food price riots and
mounting insurgencies fomented by contestation over rural resources. Meanwhile,
agriculture’s heavy footprint on natural resources motivates heated environmental
debates about climate change, water and land use, biodiversity conservation, and
chemical pollution. Agricultural technological change, especially associated with the
introduction of genetically modified organisms, also introduces unprecedented
questions surrounding intellectual property rights and consumer preferences regard-
ing credence (i.e., unobservable by consumers) characteristics. Similar new agricul-
tural commodity consumer behavior issues have emerged around issues such as local
foods, organic agriculture, and fair trade, even motivating broader social movements.
Public health issues related to obesity, food safety, and zoonotic diseases such as avian
or swine flu also have roots deep in agricultural and food policy. And, agriculture has
become inextricably linked to energy policy through biofuels production.
Meanwhile, the agricultural and food economy is changing rapidly throughout the
world, marked by continued consolidation at both farm production and retail dis-
tribution levels, elongating value chains, expanding international trade, and growing
reliance on immigrant labor and information and communications technologies.
In summary, a vast range of topics of widespread popular and scholarly interest
revolve around agricultural and food policy and the economics of those issues. This
series features leading global experts writing accessible summaries of the best cur-
rent economics and related research on topics of widespread interest to both
scholarly and lay audiences.
The Economics of Biofuel Policies: Impacts on Price Volatility in Grain and Oilseed Markets
by Harry de Gorter, Dusan Drabik, and David R. Just
THE ECONOMICS OF BIOFUEL
POLICIES
IMPACTS ON PRICE VOLATILITY IN
GRAIN AND OILSEED MARKETS
Harry de Gorter, Dusan Drabik, and
David R. Just
THE ECONOMICS OF BIOFUEL POLICIES
Copyright © Harry de Gorter, Dusan Drabik, and David R. Just, 2015.
Softcover reprint of the hardcover 1st edition 2015 978-1-137-41484-7
All rights reserved.
First published in 2015 by
PALGRAVE MACMILLAN®
in the United States— a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world,
this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries.
ISBN 978-1-349-49041-7 ISBN 978-1-137-41485-4 (eBook)
DOI 10.1057/9781137414854
Library of Congress Cataloging-in-Publication Data
De Gorter, Harry, author.
The economics of biofuel policies : impacts on price volatility in grain
and oilseed market / Harry de Gorter, Dusan Drabik, David R. Just.
pages cm.—(Palgrave studies in agricultural economics and
food policy)
Includes bibliographical references and index.
1. Biomass energy—Prices—Government policy. 2. Biomass energy—
Economic aspects. I. Drabik, Dusan, author. II. Just, David R., author.
III. Title. IV. Series: Palgrave studies in agricultural economics and
food policy.
HD9502.5.B542D44 2015
338.1(cid:25)331—dc23 2014040145
A catalogue record of the book is available from the British Library.
Design by Newgen Knowledge Works (P) Ltd., Chennai, India.
First edition: April 2015
10 9 8 7 6 5 4 3 2 1
To my mom, the true intellectual in the family
To my parents
To my father who taught me to think and learn for myself
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CONTENTS
List of Figures ix
List of Tables xi
List of Boxes xiii
Foreword xv
Christopher B. Barrett
Preface xix
Acknowledgments xxvii
Abbreviations xxix
Introduction 1
1. How Biofuel Policies Ushered in the New Era of High and
Volatile Grain and Oilseed Prices 9
2. The Economics of Biofuel Policies: The Theory of
Corn–Ethanol and Ethanol–Gasoline Price Links 23
3. Measures of Biofuel Policy Impact on Food Commodity Prices 47
4. A Forensic Analysis of the Food Commodity Price Boom of
2008 67
5. A Critique of the Literature Analyzing Biofuel Policy and
the 2008 Food Commodity Price Boom 85
6. The Economics of Developing Country Policy Responses and
Biofuel Policies 109
7. An Enhanced Exposition of the Corn–Ethanol–Energy Price
Linkages and Implications for Time Series Analysis of
Biofuel Policy Impacts 121
viii CONTENTS
8. The Impact of Biofuel Policies on Food Commodity
Price Volatility 137
9. The Economics of Biodiesel and the Central Role of
the European Union’s Policies 151
10. The Complex Structure of the US Biofuel Mandate:
A Handbook 171
11. The Economics of Brazil’s Sugarcane–Ethanol/Sugar
Complex and Policies 191
12. The Interaction Effects Among Biofuels, Policies, and
Countries 207
13. The Impact of Biofuel Policies in the Future:
Some Concluding Remarks 221
Notes 233
Definitions 251
References 255
Data Sources 271
Index 273
FIGURES
1.1 Grain prices versus biofuel production 10
1.2 Cereal and oilseed price indices (January 2005 = 1) 15
1.3 Historical price booms and busts in perspective 17
1.4 Crude oil, ethanol, and corn prices January 2004–
September 2006 18
1.5 Ethanol plant capacity and US farm price of corn 20
2.1 Economics of a biofuel blend mandate 33
2.2 Predicted versus actual corn prices 38
2.3 How low can corn prices go? (historical) 39
2.4 How low can corn prices go? (recent months) 43
3.1 The ethanol supply curve and “water” in the ethanol
price premium 49
3.2 Ethanol price premiums 52
4.1 Near futures prices for corn, soybeans, and crude oil 68
4.2 Corn–wheat price developments 70
4.3 Wheat–rice price developments 71
4.4 Cereal and crude oil price movements 75
5.1 Housing versus corn prices 86
5.2 Exchange rates versus corn price 87
5.3 China soybean imports and soybean prices 88
5.4 Trostle et al. (2011) interpretation of crop price
movements 2010–2011 97
5.5 Wheat price boom due to bad weather in 2007–2008? 106
6.1 Developing country policy response and the “standing up in
the stadium” effect 111
6.2 Effects of developing country policy response in 2008
assuming biofuel price links 113
6.3 Consumption weighted domestic and international
prices in developing countries 115
6.4 White commodity prices: Greedy speculators causing
“euphoric bubble”? Or all commodities followed
oil prices? Or sugar prices led the way? 118