Land Allocation Effects of the Global Ethanol Surge:Predictions from the International FAPRI Model

We quantify the emergence of biofuel markets and its impact on U.S. and world agriculturefor the coming decade using the multi-market, multi-commodity international FAPRI (Food andAgricultural Policy Research Institute) model. The model incorporates the trade-offs betweenbiofuel, feed, and food production and consumption and international feedback effects of theemergence through world commodity prices and trade. We examine land allocation by type ofcrop, and pasture use for countries growing feedstock for ethanol (corn, sorghum, wheat,sugarcane, and other grains) and major crops competing with feedstock for land resources suchas oilseeds. We shock the model with exogenous changes in ethanol demand, first in the UnitedStates, then in Brazil, China, the European Union-25, and India, and compute shock multipliersfor land allocation decisions for crops and countries of interest. The multipliers show at themargin how sensitive land allocation is to the growing demand for ethanol. Land moves awayfrom major crops and pasture competing for resources with feedstock crops. Because of the highU.S. tariff on ethanol, higher U.S. demand for ethanol translates into a U.S. ethanol productionexpansion. The latter has global effects on land allocation as higher coarse grain prices transmitworldwide. Changes in U.S. coarse grain prices also affect U.S. wheat and oilseed prices, whichare all transmitted to world markets. In contrast, expansion in Brazil ethanol use and productionchiefly affects land used for sugarcane production in Brazil and to a lesser extent in other sugarproducingcountries, but with small impacts on other land uses in most countries.[...]