The Impact of Energy Markets on the EU Agricultural Sector

The objective of this study is to analyze theimpact of crude oil prices on the EU-27 agriculturalsector in an era when the biofuels sector is expandingbecause of the policy initiatives taken by the EUCommission and member states. To this end, first abaseline is set up for the EU-27 ethanol, grain, and drieddistillers grains markets. In the next step, two differentscenarios are run. The first scenario incorporates a $10-per-barrel increase in the EU-27 crude oil price with theethanol import tariffs in place. The second scenarioincorporates the same shock with the ethanol importtariffs removed. In the first scenario, higher crude oilprices increase ethanol consumption, production, andtherefore grain prices. In the second scenario, theimpact of trade liberalisation is larger than the impactof the higher crude oil price. So, grain prices decline inthis scenario despite an expansion in ethanolconsumption. If there were a high enough crude oil priceshock, which would affect the EU-27 ethanol marketmore than trade liberalisation, the net impact on grain,feed, and food prices from the crude oil price shockwould be mitigated by the increased trade from tradeliberalisation. The study shows that the impact of energyprices on the EU-27 agricultural sector is increasingwith the emergence of the biofuels sector. It alsoillustrates the importance of trade policy in respondingto higher crude oil and grain prices.