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Working Paper: Impacts of Ethanol Policy on Corn Prices: A Review and Meta-Analysis of Recent Evidence

Paper Number: 2013-05

Document Date: 08/2013

Author(s): Nicole Condon, Heather Klemick and Ann Wolverton

Subject Area(s): Land Use; Energy; Environmental Policy; Transportation

JEL Classification:  Econometric Modeling: Quantitative Policy Modeling; Agriculture: R&D; Agricultural Technology; Biofuels; Agricultural Extension Services; Agricultural Policy; Food Policy; Energy: Demand and Supply; Prices

Keywords: ethanol; biofuels; renewable fuel standard; food prices; food security; meta-analysis

Abstract: The literature on the impacts of biofuels on food prices is characterized by contradictory findings and a wide range of estimates. To bring more clarity to this issue, we review studies on U.S. corn ethanol production released between 2008 and 2013. Normalizing corn price impacts by the change in corn ethanol volume, we find that each billion gallon expansion in ethanol production yields a 2-3 percent increase in corn prices on average across studies. We also conduct a meta-analysis to identify the factors that drive the remaining variation in crop price impacts across studies. We find that the baseline and policy ethanol volumes, projection year, inclusion of ethanol co-products, biofuel production from other feedstocks, and modeling framework explain much of the differences in price effects across studies and scenarios. Our study also distinguishes between analyses that estimate long-run equilibrium impacts of biofuels and short-run studies that consider the effects of unexpected policy or weather shocks, which can lead to temporary price spikes. Preliminary findings from the gray literature suggest that short-run impacts on corn prices per billion gallons of corn ethanol production in response to unexpected shocks are higher. Last, we examine a small number of studies that consider the implications of biofuel policies for food security worldwide. The literature suggests that biofuels expansion will raise the number of people at risk of hunger or in poverty in developing countries.

Published: Condon, Nicole, Heather Klemick and Ann Wolverton. 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy 51: 63–73.

This paper is part of the Environmental Economics Working Paper Series.

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