Study Finds Ethanol Production Effect on Total Cropland Acreage Small

Source: By Todd Neeley, DTN/Progressive Farmer • Posted: Thursday, January 3, 2019

For years the seeming connection between expanded ethanol production in the United States following the second Renewable Fuel Standard in 2007 and land-use changes, was put forward by biofuels opponents as a reason for ending the RFS.

More specifically, the case has been made that farmers have been tearing up native grasslands and destroying wildlife habitat to plant more corn to take advantage of the ethanol boom.

A recent study published in the American Journal of Agricultural Economics, however, finds that corn acreage and aggregate crop acreage are insensitive to local ethanol production and crop prices.

“On average, when ethanol production capacity within a county increase by 1%, then corn acreage in the county will only increase by 0.03% to 0.1% and the total crop acreage in the county will increase even less, by 0.02% to 0.03%,” the study said. “This finding indicates that ethanol production’s effect on local land-use change mainly occur at the intensive margin, that is, ethanol production increases corn acreage mainly via converting land originally under other crops to corn. Its effect on incentivizing a net increase in total cropland acreage is quite small.

“The study also shows that when corn price increases by 1%, however, corn acreage will increase by 0.18% to 0.29%. Total crop acreage has only negligible responsiveness to corn price. When aggregate crop price increases by 1%, then total crop acreage will increase by 0.07% to 0.08%. By comparing the responsiveness of land-use to local ethanol production with that to crop prices, we find that crop acreage is more sensitive to crop prices than to local ethanol production. Furthermore, we find that if crop prices are ignored in the analysis, then the land-use effect of ethanol production will be significantly overestimated.”The study authors, Ruiqing Miao in the department of agricultural economics and rural sociology at Auburn University, and Yijia Li and Madhu Khanna in the department of agricultural and consumer economics at the University of Illinois, find that land-use effect of ethanol production between 2003 and 2014 was steady “whereas the effect of crop prices was transitory as crop prices were much more volatile than ethanol production. These findings show that the land-use effect of ethanol production was relatively steady over 2003 to 2014. For total crop acreage, about 7 million acres (2.8%) was increased due to crop price increase and additional 7 million acres was increased due to ethanol production increase.”Read the full analysis here:…