Global Effects of Biofuel Production in the Medium Term

The recent global expansion of biofuel production, led by the US, Brazil and the European Union (EU), has introduced a significant new demand on agriculture affecting the production, prices, and trade of agricultural commodities related to biofuels. US ethanol production is already using a substantial and increasing share of the US corn crop: about 14% of the total corn crop in 2005/2006. The increased demand for corn has also contributed to higher corn prices and to an expansion in the total amount of cropland used to grow corn at the expense of other crops. Brazil began producing ethanol from sugar cane to use as fuel in the 1970s. Since then, the area of land used to grow sugar cane and other crops (particularly soybeans) has grown rapidly. As cropland and pasture have replaced forest and cerrado in the Brazilian Amazonia, around 7 million hectares were converted to agriculture from 1980 to 1995. However, Brazilian agricultural officials assert that future increases in cropland devoted to sugar cane will come from pastureland rather than from forestland. Given the complexity of agricultural markets, evaluating the repercussions of a growing global market for biofuels is not simple. Economists found very quickly that most existing agricultural models lacked the necessary components and data to account for biofuel production, especially at the global level. This exposed a need to improve the current analytical modelling frameworks and data systems. To help cover this gap, the Economic Research Service (ERS) of the US Department of Agriculture (USDA) developed FARM II, a revised and updated version of the Future Agricultural Resources Model (FARM) that allows the study of the impacts of global biofuel production and examines the economic and environmental tradeoffs, as well as the distribution of benefits and costs across countries, regions, producers, and consumers. This paper summarizes a study made using the FARM II model augmented to account for biofuels related sectors. We focus on ethanol production in the medium term; that is, around 2015. We assume that while improvements in current technology and the impact of biotechnology will improve yields and technical plant efficiency, the medium term impact of ethanol from cellulose and other technological breakthroughs will be small. Under those assumptions, we also explore the implications of biofuels on pesticide use.