Impact of Biofuel Industry Expansion on Grain Utilization and Distribution: Preliminary Results of Iowa Grain and Biofuel Survey

This paper examines the impact of biofuel expansion on grain utilization and distribution at the state and cropping district level as most of grain producers and handlers are directly influenced by the local changes. We conducted a survey to understand the utilization and flows of corn, ethanol and its co-products, such as dried distillers grains (DDG) in Iowa. Results suggest that the rapidly expanding ethanol industry has a significant impact on corn utilization in Iowa. Comparing to the earlier survey results, ethanol plants drew a considerable amount of corn away from traditional destination markets, such as feeders or export markets. A major portion of corn supplies came from in-state sources, while the sales of Iowa ethanol and DDG were dominated by out-of-state buyers.biofuel, grain, utilization, Marketing,

Mitigating Land Use Changes From Biofuel Expansion: An Assessment of Biofuel Feedstock Yield Potential in APEC Economies

The emerging biofuel sector has drawn great interest as an alternative source of fuel for transportation. The expansion of biofuels greatly impacts world agricultural markets, since currently, the primary feedstocks for ethanol and biodiesel production are field crops and their derived products. There is great interest in the potential of countries to expand their biofuel sectors through increased production of feedstocks. The long-term potential for developing first-generation biofuels in many countries depends on a large and constant supply of feedstocks. This may be achieved in two ways: land extensification and/or land intensification. However, expansion of land area comes with a number of environmental challenges highlighted by the recent debate on indirect land use change brought about by biofuel expansion (Searchinger et al., 2008; Fargione et al., 2008). Therefore, land intensification through yield growth, and production of second-generation biofuel feedstocks, such as crop residues and perennial grass on marginal land, are generally seen as critical factors for sustainable development of biofuels as well as mitigation of land use changes. In this context, it is essential to gain a better understanding of the yield trends and the future yield potential of biofuel feedstocks to help determine the impact of biofuel expansion on agricultural markets. Therefore, the aim of this analysis is to review and analyze historical and projected trends of crop yields, particularly for crops used in biofuel production. One of our major interests is the impact of crop prices on yields in the long run, given that the increased production of biofuels from crops has created a perceived permanent increase in crop prices. Based on this analysis, we draw conclusions regarding the yield potential of biofuel feedstocks. We focus our analysis on APEC economies because of their rapidly growing interest in biofuel development and the diversified agricultural production among member countries. Comparing average annual growth in crop yields across APEC economies and across crops, we find that the crop yield growth rates vary significantly. Corn ranks among the crops with the largest yield improvement in a significant number of the APEC economies, mostly due to increased fertilizer use and biotechnology. The analysis also reveals that sugarcane yields have been fairly stable with the exception of significant growth in China, Philippines and Thailand. One of the highest soybean yields is seen in the United States, which is a major producer. Soybean yields in China and Indonesia are lower relative to the United States, but show much lower variability over time. In the past decade, palm oil yields have increased dramatically in Indonesia. Further analysis reveals that an economy, like the United States, which already has high yield levels for the majority of crops, experiences relatively lower yield growth rates relative to other economies. On the other hand, economies like Philippines and Malaysia have relatively lower corn yields but high yield growth rates, which indicate a higher potential for increasing crop production through yield increases rather than land expansion. Yield growth rates for most crops in most APEC economies fall in the lower to medium range although there is significant variance in yields among the economies. This variation could be due to the fact that some economies have adopted mechanization and new technologies in their crop production, whereas other economies rely heavily on labor and basic inputs. Hence, economies with high technical advantage have the potential to improve crop yields by continuous development in biotechnology. In contrast, economies with less technological resources may enhance crop yields through increasing input utilization including more capital intensive inputs. We also compute yield elasticities with respect to a time trend variable for the major crops in APEC economies. For most but not all APEC economies, the coefficient estimates are statistically significant. There is wide variation in the magnitude of the elasticities among economies and crops, some even with a negative elasticity. When comparing among crops, we see that corn yields show relatively higher elasticities with respect to time trend. Across APEC economies, China shows consistent yield response over time for all crops. Across crops, sorghum has the highest elasticity in China, corn in the Philippines, sugar beet in Canada, wheat in New Zealand, rice in Indonesia, and sugarcane in Malaysia. In addition to the increased production in primary crops, yield growth would also translate to an increase in available crop residues. According to Milbrandt and Overend (2008), ethanol from currently available crop residues could potentially displace about 33% of gasoline consumption in the APEC region, assuming that cost-competitive technologies for production of ethanol from second-generation lignocellulosic feedstocks can be deployed. Thus, given average yield growth projections for certain crops in APEC economies, our calculations show that the United States could potentially displace an additional 2% of gasoline from corn residue, Australia an additional 9% of gasoline from wheat residue, and Thailand an additional 3.5% from sugarcane residue, without increasing land for biofuel production. The analysis concludes that in terms of first-generation biofuels, yield growth is imperative for the long-term potential of biofuel expansion if land extensification is to be minimized. Biofuel expansion may imply increased land use for feedstock production in the medium term, but growth in feedstock yields will tend to mitigate the impact on crop prices and land use over the longer term. Additionally, long-term expansion of biofuels may have to rely on the economic viability of production from lignocellulosic feedstocks. Based on the data analysis, APEC economies have the capability and the capacity to increase feedstock yields for biofuel production, particularly the economies that have relatively lower yield levels and are further away from their yield plateau levels. However, this requires targeting yield-enhancing activities including investments in agricultural R&D, better farm practices, and increased input use. Some of the practices that already have resulted in yield improvements in some countries, such as extension services and fertilizer subsidies, could be transferred to other economies. Countries could also provide incentives, such as tax reductions or government payments, which have proven to be successful in inducing farmers to invest in yield-improving technologies. However, it is crucial that each economy should identify its own advantage in terms of productivity improvements for its agricultural commodities. To achieve yield growth, countries should create an environment conducive to technological change and diffusion of new technology through public R&D and incentives for private R&D investments. References: Fargione, J., J. Hill, D. Tilman, S. Polasky, and P. Hawthorne. 2008. “Land Clearing and the Biofuel Carbon Debt”, Science, February 29: 1235-1238. Milbrandt, A. and R.P. Overend. 2008. “Survey of Biomass Resource Assessments and Assessment Capabilities in APEC Economies.” Energy Working Group, Asia-Pacific Economic Cooperation, APEC# 208-RE-01.9. Searchinger, T., R. Heimlich, R. Houghton, F. Dong, A. Elobeid, J. F. Fabiosa, S. Tokgoz, D. J. Hayes, T. Yu. 2008. “Factoring Greenhouse Gas Emissions from Land Use Change into Biofuel Calculations”, Science, February 29:1238-1240.biofuels, yield growth, APEC, Land Economics/Use, Productivity Analysis,

The 2007/08 Iowa Grain and Biofuel Flow Study: A Survey Report

Driven by the expanding production of biofuels, the linkage between the agricultural and energy markets is evolving, and that has changed the market for agricultural commodities dramatically. These developments in agricultural markets consequently shifted the distribution of domestic grains and feeds and the utilization of shipping modes for these agricultural products. As the leading producer of corn, soybeans, and biofuels, Iowa is at the forefront of this shift. Because of the importance of maintaining an adequate state transportation system to accommodate the evolving patterns of grain and biofuel flows, it is important to have current information about grain flows from farms and country elevators to destination markets, along with the information about transportation modes utilized for the shipments. Information about biofuel distribution is also crucial for agricultural and transportation policymakers so that they can provide relevant assistance for this growing industry. This study is designed to meet these needs and to provide updated information on grain and biofuel flows in Iowa during the 2006 and 2007 marketing years

The 2006/07 Iowa Grain and Biofuel Flow Study: A Survey Report

This report is divided into two sections. The first part reports the statewide results for each of five surveyed groups: Iowa grain marketers, Iowa grain handlers, Iowa corn processors, Iowa soybean processors, and Iowa biodiesel producers. The state-level results provide a general idea of the grain and biofuel flows that occurred and the transportation that was utilized in the biofuel-boom era. In order to gain further insights into the regional level data, we present the survey results of grain marketers and handlers in each crop reporting district (CRD) in the second part of the report

Evaluating the Production and Price Impacts of Biotechnology Application in Crop Markets

Biotechnology crop traits have been applied on a widespread commercial global basis since 1996, making it the most rapidly adopted crop technology in agriculture. The primary biotechnologies used have included technology delivering herbicide tolerance and insect resistance for crops, such as corn, soybeans, cotton, and canola. This technology has provided farmers with productivity improvements through a combination of yield improvements and cost reductions. Thus, this technology has had an impact on prices of cereals and oilseeds (and their derivatives) both in countries where biotech traits were applied and in the global market. Realizing the surging significance of biotechnology application in global crop markets, this study first summarizes the productivity impacts of biotech crops on production; secondly, aims to quantify the impact of the use of biotech traits on production, utilization and prices of corn, soybeans, and canola as well as other crops where the biotechnology is not utilized.biotech crops, prices, yield, soybeans, corn, canola, partial-equilibrium model, price effects, Demand and Price Analysis, Productivity Analysis,

The Production and Price Impact of Biotech Crops

Biotech crops have now been grown commercially on a substantial global scale since 1996. This paper examines the production effects of the technology and impacts on cereal and oilseed markets through the use of agricultural commodity models. It analyses the impacts on global production, consumption, trade and prices in the soybean, canola and corn sectors. The analysis suggests that world prices of corn, soybeans and canola would probably be, respectively, 5.8%, 9.6% and 3.8% higher, on average, than 2007 baseline levels if this technology was no longer available to farmers. Prices of key derivatives of soybeans (meal and oil) would also be between 5% and 9% higher, with rapeseed meal and oil prices being about 4% higher than baseline levels. World prices of related cereals and oilseeds would also be expected to be higher by 3% to 4%. The effect of no longer using the current widely used biotech traits in the corn, soybean and canola sectors would probably impact negatively on both the global supply and utilization of these crops, their derivatives and related markets for grain and oilseeds. The modelling suggests that average global yields would fall for corn, soybeans and canola and despite some likely compensating additional plantings of these three crops, there would be a net fall in global production of the three crops of 14 million tonnes. Global trade and consumption of these crops/derivatives would also be expected to fall. The production and consumption of other grains such as wheat, barley and sorghum and oilseeds, notably sunflower, would also be affected. Overall, net production of grains and oilseeds (and derivatives) would fall by 17.7 million tonnes and global consumption would fall by 15.4 million tonnes. The cost of consumption would also increase by $20 billion (3.6%) relative to the total cost of consumption of the (higher) biotech-inclusive level of world consumption. The impacts identified in this analysis are, however, probably conservative, reflecting the limitations of the methodology used. In particular, the limited research conducted to date into the impact of the cost-reducing effect of biotechnology (notably in herbicide-tolerant soybeans) on prices suggests that the price effects identified in this paper represent only part of the total price impact of the technology

Long-Term and Global Tradeoffs between Bio-Energy, Feed, and Food

Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum of 1.1% over baseline levels. Results of a model of a 1988-type drought combined with a large mandate for continued ethanol production show sharply higher crop prices, a drop in livestock production, and higher food prices. Corn exports would drop significantly, and feed costs would rise. Wheat feed use would rise sharply. Taking additional land out of the CRP would lower crop prices in the short run. But because long-run corn prices are determined by ethanol prices and not by corn acreage, the long-run impacts on commodity prices and food prices of a smaller CRP are modest. Cellulosic ethanol from switchgrass and biodiesel from soybeans do not become economically viable in the Corn Belt under any of the scenarios. This is so because high energy costs that increase the prices of biodiesel and switchgrass ethanol also increase the price of corn-based ethanol. So long as producers can choose between soybeans for biodiesel, switchgrass for ethanol, and corn for ethanol, they will choose to grow corn. Cellulosic ethanol from corn stover does not enter into any scenario because of the high cost of collecting and transporting corn stover over the large distances required to supply a commercial-sized ethanol facility.biofuels, corn acreage, crop prices, ethanol production, food prices, Resource /Energy Economics and Policy,

U.S. Proposal for WTO Agriculture Negotiations: Its Impact on U.S. And World Agriculture

The Food and Agricultural Policy Research Institute (FAPRI) analyzed the latest U.S. proposal to the Doha round of WTO negotiations (see Appendix 1, U.S. Proposal for WTO Agriculture Negotiations, USTR, October 10, 2005). While the U.S. proposal provides many concrete steps to reduce farm support and trade distortions, it does not provide all necessary information for quantitative analysis of the proposal. FAPRI, through consultations with economists and staffers of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, Office of the United States Trade Representative, and U.S. Department of Agriculture, elaborated a complementary set of policy assumptions to carry the quantitative analysis. The analysis is conducted in deviation from the baseline of the FAPRI 2005 U.S. and World Agricultural Outlook. New policies put in place since the 2005 baseline was established have been accommodated to separate the impact of the policy scenario from the full set of policy assumptions.