New Study Shows that Corn Acreage and Total Crop Acreage Are Not Very Responsive to Local Ethanol Production and Crop Prices

by Ruiqing Miao, Yijia Li and Madhu Khanna (FarmDocDaily) Land-use change is in the forefront of human-nature interaction and is the nexus of food security, farm economy, greenhouse gas emission, and ecosystem services. How the development of corn-based biofuel affects land-use change, particularly at the extensive margin, has been the focus of the debate regarding the environmental and economic impact of U.S. biofuel policies since the ethanol boom about one decade ago. Many studies have investigated the question; however, no consensus has been reached.

It is well understood that land-use is largely determined by economic drivers. Ethanol production affects land-use via influencing these economic drivers, such as crop prices. However, the challenge of quantifying the effect of ethanol production on land-use is that the effect of ethanol production on the economic drivers is commingled with numerous other factors (e.g., international trade, weather shocks, and even taste changes) to be reflected altogether in crop prices. Previous studies largely ignored crop prices as a confounding factor for ethanol production and crop acreage.

We recently published a study in American Journal of Agricultural Economics to further examine the responsiveness of land-use to local ethanol production while addressing the aforementioned challenge by simultaneously considering the effect of both ethanol production and crop prices on land-use change. Doing so allows us to disentangle the land-use effect of local ethanol production and that of crop prices. The study covers the entire contiguous United States over 2003-2014 when U.S. ethanol production initially increased exponentially and then plateaued whereas crop prices fluctuated substantially. To explain, we will first briefly describe the industrial background of U.S. ethanol and agricultural commodities.

Based on the data that include significant increase in ethanol production and fluctuation of crop prices, the study 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%-0.1% and the total crop acreage in the county will increase even less, by 0.02%-0.03%. 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.

(C)rop 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.

Moreover, our analysis show that the land-use change caused by ethanol production was relatively steady but that caused by crop price was transitory, indicating the dynamic nature of land-use change as well as the importance of examining its responsiveness to time-varying factors. READ MORE