Impact of biofuel policies on the use of land and energy in U.S. agriculture

The goal of this study is to evaluate the importance of biofuel policies on the price levels of grains that compete for the use of limited resources, as well as to the use of alternative inputs in grains production in the United States. A theoretical 2-inputs, 2-outputs model is developed to provide foundation of the relationship between ethanol policy and grains prices and agricultural inputs use. Simulations are run using the theoretical model results and empirical values of the demand and supply elasticities for given crops and inputs, and input and output shares in production, to determine the indirect and direct effects of ethanol policy on grain prices and input use. Results suggest that corn prices increase leading to an increase in wheat prices. Both land and energy use in corn production increases disproportionally more than what they decrease in wheat production. The relative increase of energy used in agriculture following the adoption of ethanol policies is especially interesting since it stands in contrast to the proclaimed goals of the policy. The results of this study may give greater knowledge to policy makers, who can be better informed with respect to the secondary effects of ethanol legislation.