Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence

Abstract

The literature on the impacts of biofuels on agricultural commodity prices is characterized by contradictory findings. We review studies published between 2007 and 2014 that estimate the effects of U.S. corn ethanol policy on corn prices and find estimates ranging from nil to over 80%. Such divergent results make it difficult to assess the merits of alternative biofuel policies. To bring more clarity to the issue and facilitate comparisons across studies, we assemble a database of over 150 medium-to-long run estimates of the effect of corn ethanol production on corn prices from 29 published studies. We first normalize corn price impacts by the change in corn ethanol volume to control for the large differences in ethanol quantities across scenarios. We then conduct a meta-analysis to identify the factors that drive the remaining variation in corn price impacts across studies. In addition to ethanol volumes, we find that modeling framework, projection year, inclusion of ethanol co-products, and biofuel production from other feedstocks explain much of the differences in price effects. The results indicate that a one billion gallon expansion of the US corn ethanol mandate in the year 2015 would lead to a three to four percent increase in corn prices, with smaller price changes projected in future years.