Assessing the food vs. fuel issue: An agent-based simulation

Abstract

Energy security and environmental concerns are critical issues for North America. The development of the bio-fuel industry has given grain farmers another crop option. Trends towards renewable fuels could also put fuel production at odds with traditional food agriculture, a situation referred to as the “food vs. fuel” debate. This research models profit maximizing farm crop choices as energy crops become a crop option. We develop a simulation to estimate the oil price level where farmers would switch from the production of grain for food over to bio-energy crops. We also investigate consequences associated with this process on the elevator industry.Using a major crop production region in Canada as a template, we estimate that real annual crude oil prices must remain consistently 30% above the (2008) peak oil price before most farmers in the region would switch over to the production of wheat for biofuel. If government biofuel support falls from current levels, a considerably higher oil price would be needed to entice farmers to switch. As the production of food grain decreases, we also observe that the grain handling industry will gradually “shake out” and likely be characterized by much higher elevator firm concentration than exists currently.