The impact of biofuel demand on agricultural commodity prices: a systematic review

Abstract

By diverting agricultural land away from food, feed, and livestock production, increased production of biofuel feedstock crops tend to drive up prices for agricultural commodities. But by how much? This question has been heavily debated in recent years, following the food price crisis of 2007–2008. A systematic review of 121 studies that quantifies the impact of biofuel demand on agricultural commodity markets reveals that there is still considerable uncertainty around the exact magnitude of the price response. Increased demand for corn ethanol in the United States—the focus of the majority of studies—is estimated to have accounted for 14–43% of the rise in US corn prices in the period 2000–2008. The divergence in results between studies is mainly due to different assumptions regarding demand and supply elasticities for agricultural commodities, and there is very limited empirical evidence that can help reduce the uncertainty around the value of these parameters, especially outside the United States. Few studies analyze the impact of biofuel demand beyond current or near‐future levels and it is argued that estimated price effects can neither be extrapolated to large‐scale biofuel demand shocks, nor are most models able to capture accurately the impacts of such shocks due to weaknesses in how land markets and land transformation process are modeled. To better gauge current and future impacts of biofuel demand on agricultural commodity markets, we need better data on supply and demand responses, both in the short and long run, as well as improved modeling of land competition and land‐use change. WIREs Energy Environ 2015, 4:410–428. doi: 10.1002/wene.155This article is categorized under: Bioenergy > Economics and Policy Energy and Development > Economics and Policy