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Effects Of The Ethanol Boom In The U.S.

The recent boom in ethanol and biofuels production and the importance of corn as the principal source of ethanol have and will continue to have a major effect on U.S. agriculture. In a recent panel discussion on Ethanol and Other Biofuels: Present and Future, organized by the USDA Economists Group, Thomas Dorr, USDA Under Secretary for Rural Development, affirmed the administration's belief in the increasing demand for and importance of biofuels for the U.S. economy.

The Agricultural Materials Program at NIFA provides leadership and support to help its partners develop processes to transition from a fossil fuel to a biobased economy. NIFA's Partners Video Magazine recently highlighted a few of these successes in the episode "Fueling America." In particular, the scientific and engineering expertise of the Land-Grant University System is producing breakthroughs in the production and processing of biomass resources.

Complementing the technological approach, NIFA also promotes investigations into the effect of ethanol on the environment and on rural economies. NIFA and USDA's Office of Energy Policy and New Uses sponsor "Agriculture and Energy," a Science and Education Seminar Series emphasizing sustainability issues relating to the environment, economic viability, and rural development. A multistate research, education and extension/outreach committee in the North Central region

  • focuses on the sustainability of corn ethanol refining systems;
  • analyzes the impact of energy policies on commodity prices, byproducts, and land use ;
  • reports on the effect that e thanol plants have on local communities; and
  • looks into production and use of corn byproducts.

Also in the North Central region, a consortium of land-grant institutions and state departments of agriculture is working to

  • expand the use of biomass in the Midwest;
  • raise the profile of the bioeconomy in the media and among policymakers;
  • develop a regional approach for attracting venture capital investment; and
  • reach a consensus on regional policies for encouraging the use of biomass.

And at a state level, a recent policy report from the University of Illinois' Department of Agricultural and Consumer Economics, titled Corn-Based Ethanol in Illinois, investigates and provides 'objective information to Illinois stakeholders, cutting through the emotional, political, and economic self-interests that often dominate discussions about ethanol production and use.'

From a national perspective, recent work by agricultural economists at land-grant universities1 investigates the economic impacts of increasing biofuel production, the potential of agricultural sources beyond corn in the production of biofuels, and the effect of different policies in promoting renewable energy. In a recent report titled "Ethanol Expansion in the United States: How Will the Agricultural Sector Adjust?", economist Paul Westcott (USDA-Economic Research Service) examines how the expansion of ethanol will affect the U.S. agricultural sector. "Market adjustments to this increased demand extend well beyond the corn sector to supply and demand for other crops, such as soybeans and cotton, as well as to U.S. livestock industries." Westcott sees ethanol demand as very inelastic, and believes that the overall demand in the corn sector will become even more inelastic as ethanol production grows. Others are less sure. In his article "Policies for Farmers to Retain More of the Gains from Technological Change," Luther Tweeten, emeritus chaired professor at Ohio State University, contends that the rise in ethanol demand makes demand for corn and overall farm output more elastic, and fundamentally alters the U.S. and world food economy.

The final analyses of the effects of the ethanol boom are yet to come. The dynamics of policy, weather, and economics will lead to additional questions:

  • Are recent bankruptcies a harbinger of the beginning of the end of the boom?
  • Will the policy portfolio of tariff and subsidy support shift?
  • The most commonly used measure of core inflation is the Consumer Price Index (CPI) excluding food and energy, published by the Bureau of Labor Statistics. Will concerns about food and energy inflation become an intervening factor?

 

Footnote:

1Sixty Billion Gallons by 2030: Economic and Agricultural Impacts of Ethanol and Biodiesel Expansion by Daniel G. De La Torre Ugarte, Burton C. English and Kim Jensen, American Journal of Agricultural Economics 89 (5), 12901295

Challenges to the Development of a Dedicated Energy Crop, by Francis M. Epplin, Christopher D. Clark and Roland K. Roberts, American Journal of Agricultural Economics 89 (5), 12961302

Renewable Energy Policy Alternatives for the Future, by Wallace E. Tyner , Farzad Taheripour, American Journal of Agricultural Economics 89 (5), 13031310.

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