Opponents of the Renewable Fuel Standard (RFS) have long hoped to make a connection between the expansion of ethanol production and land-use changes. Specifically, they tend to argue that farmers have been converting native grasslands and wildlife habitats to cornfields in order to take advantage of the growing demand for ethanol. They use this as reasoning for why RFS should not be renewed.
Ethanol Production and Local Land-Use Change
Todd Neely of DTNPF shared the results of a study that disputes this reasoning on his Ethanol Blog. It was released from the American Journal of Agricultural Economics in December. As it turns out, ethanol production doesn’t have much of an impact on local land-use change at all.
“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.
So, farmers are just converting other crops to corn.
“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.”
Crop acreage is more sensitive to crop prices than it is to local ethanol production.
The study was performed by Madhu Khanna from the Department of Agricultural and Consumer Economics at the University of Illinois. In their introduction, the authors state that many previous studies have looked into this question, but at this time there is no consensus on the matter. However, many of these studies did not factor in crop prices.Department of Agricultural Economics and Rural Sociology at Auburn University, and Yijia Li and
They converged data from across the US over the years 2003-2014. During this time, ethanol production increased substantially and then plateaued. Crop prices during that time varied largely.
We further predict land-use changes caused by local ethanol production and by crop prices over 2003-2014 period. We find that everything else equal, about 6 million acres (about 7.6%) of corn can be attributed to the increase in corn price and about 9 million acres (about 11%) can be attributed to ethanol production over this period. Between 2008 and 2014, however, our model predicts that land-use change caused by corn price is negligible because in 2014 corn price regressed to the 2008 level. The effect of ethanol production on land-use sustained during 2008-2014 as ethanol capacity had been growing in this period. These findings show that the land-use effect of ethanol production was relatively steady over 2003-2014 whereas the effect of crop prices was transitory as crop prices were much more volatile than ethanol production was.
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.
They conclude by saying that their study helps contribute to our general understanding of land-use changes. If they’re caused by either ethanol production or crop prices, they occur at the ‘intensive margin.’ And the changes are slight. But if crop prices aren’t factored in, then the land-use effect of ethanol production will probably be overestimated. Land-use change during this time period was fairly steady, but the land-use change caused by crop price was more transitional. This study really demonstrates the complexity of land-use changes over this time period, and is something to consider moving forward.