THE IMPACT OF ALCOHOL FUEL PRODUCTION ON AGRICULTURAL MARKETS
Abstract
The United States responded to the energy crisis of the 1970's with a variety of Federal and State programs to conserve energy and to assist in the development of domestically produced fuels as a way of reducing U.S. dependence on imported petroleum. Production of alcohol from biomass feedstocks, such as corn, was given Federal and State support which resulted in alcohol production rising from 20 million gallons in 1979 to 430 million gallons in 1984. The principal objective of this research was to estimate the impacts of alcohol production from corn on selected agricultural markets. The tool of analysis was a three region (United States, the European Community and the rest of the world) econometric model of the markets for corn, soybeans, soybean meal, soybean oil, wheat and corn byproduct feeds. Three alternative growth paths for alcohol production (totalling 1.1, 2.0, and 3.0 billion gallons) were analyzed with the model in the context of three different trade environments for corn gluten feed (unrestricted trade, an EC import quota, and limited world trade) over the historical period 1967-80. The results of this analysis indicate that alcohol production of 1.1 billion gallons by 1980 would have caused moderate adjustments to commodity markets while 3.0 billion gallons would have caused major adjustments. Corn prices rose sharply with increased alcohol production as did wheat prices but to a somewhat lesser extent. The substitution of corn for soybeans on the supply side was not sufficient to offset the demand depressing effects of corn byproduct feeds on soybean meal which translated into slightly lower soybean prices. A quota limiting imports of corn gluten feed into the EC to three million tons annually would cause reductions in export earnings for corn millers. Only minor adjustments occur in other commodity markets (slightly lower prices and some redistribution of trade) as long as the displaced corn gluten feed is made up by increased imports of corn and soybean meal.
Degree
Ph.D.
Subject Area
Agricultural economics
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