Showing papers by "Jacinto F. Fabiosa published in 2011"

Sensitivity of Carbon Emission Estimates from Indirect Land-Use Change

Abstract: An agricultural projection and greenhouse gas model are used to assess the impact of global cropland expansion on carbon emissions and the sensitivity of those estimates to modifications in assumptions concerning idle cropland, the degree of refinement in carbon coefficients, market responses, and yield increase. The results indicate that the impact of cropland expansion on carbon emissions is extremely sensitive to model assumptions. This is particularly true with respect to the price-induced yield response. Given the available knowledge, it is very difficult to narrow the range of reasonable parameter values to tighten the set of results to a level that would allow robust policy conclusions.

The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History

Abstract: The rapid rise in corn prices that began in the fall of 2006 coincided with exponential growth in U.S. corn ethanol production. At about the same time, new ethanol consumption mandates were added to existing ethanol import tariffs and price subsidies. This troika of subsidies leads critics to view the ethanol industry as being beholden to subsidies, which then leads to the conclusion that ethanol subsidies lead to high corn prices. But droughts, floods, a severe U.S. recession, and two general commodity price surges have also occurred since 2006. It simply is wrong to assume that none of these factors has influenced corn prices. While we cannot rerun history to see what corn prices would be like today without ethanol subsidies, we can rewrite history in a computer model to estimate what impact subsidies have had on market prices. The model would first need to be calibrated so that its solution re-creates what actually happened in agricultural markets. Then it would need to be rerun after government incentives to produce and consume corn ethanol are removed from the model's equations. The resulting prices can then be compared to the historical record to estimate the market impacts of ethanol subsidies. This is exactly what we did for the 2005 to 2009 corn marketing years using the same model of the agricultural sector that CARD research staff used for the Environmental Protection Agency to estimate land-use changes from biofuels. To further isolate the effects of ethanol on commodity prices, we also ran a scenario in which we froze ethanol production at 2004 levels. A number of issues were clarified through this exercise. First, the general pattern of corn prices that we saw in the historical period-increasing prices in in 2006 and 2007, a price spike in 2008, followed by a sharp price decline in 2009-would have occurred without ethanol subsidies or even if corn ethanol production had not expanded. Second, investor fervor for corn ethanol in 2005, 2006, and 2007 would have occurred even without subsidies because a combination of cheap corn, a phase-out of MTBE, and higher crude oil prices made ethanol profitable. Thus, ethanol production would have expanded quite rapidly even without subsidies. Using the 2004 corn price of $2.06 per bushel as a reference, actual corn prices increased by an average of $1.65 per bushel from 2006 to 2009. Only 14 cents (8%) of this increase was due to ethanol subsidies. Another 45 cents of the increase was due to market-based expansion of the corn ethanol industry. Together, expansion of corn ethanol from subsidies and market forces accounted for 36% of the average increase that we saw in corn prices from 2006 to 2009. All other market factors accounted for 64% of the corn price increase.

Global Biofuel Expansion and the Demand for Brazilian Land: Intensification versus Expansion

Abstract: We use a spatially disaggregated model of Brazilian agriculture to assess the implications of global biofuel expansion on Brazilian land usage at the regional level. This Brazilian model is part of the FAPRI agricultural modeling system, a multimarket, multi-commodity international agricultural model, used to quantify the emergence of biofuels and to analyze the impact of biofuel expansion and policies on both Brazilian and world agriculture. We evaluate two scenarios in which we introduce a 25% exogenous increase in the global demand for ethanol and one scenario in which we increase global ethanol demand by 50%. We then analyze the impact of these increases in terms of land-use change and commodity price changes particularly in Brazil. In the first scenario, we assume that the enforcement of the land-use reserve in Brazil remains at historically observed levels, and that abundant additional land can be readily incorporated into production. The second scenario involves implementing the same exogenous biofuel demand shock but with a different responsiveness in area expansion to price signals in Brazil, reflecting varying plausible assumptions on land availability for agricultural expansion. The third scenario, which is similar to the first scenario but with a larger increase in global ethanol demand, is run to check whether increasing volume of ethanol requires the incorporation of additional quantities of land per unit of ethanol. We find that, within Brazil, the expansion occurs mostly in the Southeast region. Additionally, total sugarcane area expansion in Brazil is higher than the increase in overall area used for agriculture. This implies that part of the sugarcane expansion displaced other crops and pasture that is not replaced, which suggests some intensification in land use. The lower land expansion elasticities in the second scenario result in a smaller expansion of area used for agricultural activities. A higher proportion of the expansion in sugarcane area occurs at the expense of pasture area, which implied land intensification of beef production. This explains the small change in commodity prices observed between the first and second scenarios. These results suggest that reducing the overall responsiveness of Brazilian agriculture may limit the land-use changes brought about by biofuel expansion, which would in turn reduce its environmental impacts in terms of land expansion. Additionally, the impacts on food prices are limited because of the ability of local producers to increase the intensity of land use in both crop (by double cropping and raising yields) and livestock production (by increasing the number of heads of cattle per hectare of pasture or stocking rate) releases area that can be used for crops. In scenario three, we find that larger ethanol volumes did not require more land per unit of ethanol. Doubling the demand for ethanol does not change the results, which indicates that the limit for intensification is beyond the 50% expansion assumed in Scenario 3. In this range, the same amount of land is incorporated into production per additional unit of ethanol.

FAPRI-ISU 2011 World Agricultural Outlook

Abstract: The FAPRI-ISU 2011 World Agricultural Outlook presents projections of world agricultural production, consumption, and trade under average weather patterns, existing farm policy, and policy commitments under current trade agreements and custom unions. These projections are intended for use by farmers, U.S. Congress, government agencies and officials, agribusinesses, and others who do medium-range and long-term planning. This outlook introduces a fertilizer model and a cellulosic ethanol model and presents an improved greenhouse gas emission accounting model. This allows FAPRI-ISU to include in its outlook projections of world fertilizer use by nutrient, by country, by commodity, and by year, and projections of greenhouse gas emissions by source, by country, and by year.

Greenhouse Gas and Nitrogen Fertilizer Scenarios for U.S. Agriculture and Global Biofuels

Abstract: This analysis uses the 2011 FAPRI-CARD (Food and Agricultural Policy Research Institute-Center for Agricultural and Rural Development) baseline to evaluate the impact of four alternative scenarios on U.S. and world agricultural markets, as well as on world fertilizer use and world agricultural greenhouse gas emissions. A key assumption in the 2011 baseline is that ethanol support policies disappear in 2012. The baseline also assumes that existing biofuel mandates remain in place and are binding. Two of the scenarios are adverse supply shocks, the first being a 10% increase in the price of nitrogen fertilizer in the United States, and the second, a reversion of cropland into forestland. The third scenario examines how lower energy prices would impact world agriculture. The fourth scenario reintroduces biofuel tax credits and duties. Given that the baseline excludes these policies, the fourth scenario is an attempt to understand the impact of these policies under the market conditions that prevail in early 2011. A key to understanding the results of this fourth scenario is that in the absence of tax credits and duties, the mandate drives biofuel use. Therefore, when the tax credits and duties are reintroduced, the impacts are relatively small. In general, the results show that the entire international commodity market system is remarkably robust with respect to policy changes in one country or in one sector. The policy implication is that domestic policy changes implemented by a large agricultural producer like the United States can have fairly significant impacts on the aggregate world commodity markets. A second point that emerges from the results is that the law of unintended consequences is at work in world agriculture. For example, a U.S. nitrogen tax that might presumably be motivated for environmental benefit results in an increase in world greenhouse gas emissions. A similar situation occurs in the afforestation scenario in which crop production shifts from high-yielding land in the United States to low-yielding land and probably native vegetation in the rest of the world, resulting in an unintended increase in global greenhouse gas emissions.

Economy Wide Impacts of a Foreign Animal Disease in the United States

Abstract: This report uses the CARD FAPRI model to evaluate the economy wide impacts of a disease outbreak that eliminates US pork and beef exports simultaneously and pork exports alone. In either case industry losses are enormous and spread well beyond the pork and beef sectors. Revenues fall significantly for poultry, corn and soybean producers and employment in rural areas is negatively impacted as the US pork and beef sectors are forced to downsize. Revenue losses in the combined US pork and beef industries fall by an average of $12.9 billion per year. The removal of this level of value added activity is equivalent to the loss of as many as 58,000 full time jobs. The report uses option prices to calculate the likelihood of a price impact of the magnitude reported here. This suggests a less than one percent possibility of an outbreak of this severity. Multiplying the probability of an outbreak times the reduction in pork industry net revenues over variable costs in the event of an outbreak, suggests that the annual benefit of eliminating the possibility of this outcome would be worth $137 million.

Greenhouse Gas and Nitrogen Fertilizer Scenarios for U.S. Agriculture and Global Biofuels

Abstract: This analysis uses the 2011 FAPRI-CARD (Food and Agricultural Policy Research Institute–Center for Agricultural and Rural Development) baseline to evaluate the impact of four alternative scenarios on U.S. and world agricultural markets, as well as on world fertilizer use and world agricultural greenhouse gas emissions. A key assumption in the 2011 baseline is that ethanol support policies disappear in 2012. The baseline also assumes that existing biofuel mandates remain in place and are binding. Two of the scenarios are adverse supply shocks, the first being a 10% increase in the price of nitrogen fertilizer in the United States, and the second, a reversion of cropland into forestland. The third scenario examines how lower energy prices would impact world agriculture. The fourth scenario reintroduces biofuel tax credits and duties. Given that the baseline excludes these policies, the fourth scenario is an attempt to understand the impact of these policies under the market conditions that prevail in early 2011. A key to understanding the results of this fourth scenario is that in the absence of tax credits and duties, the mandate drives biofuel use. Therefore, when the tax credits and duties are reintroduced, the impacts are relatively small. In general, the results show that the entire international commodity market system is remarkably robust with respect to policy changes in one country or in one sector. The policy implication is that domestic policy changes implemented by a large agricultural producer like the United States can have fairly significant impacts on the aggregate world commodity markets. A second point that emerges from the results is that the law of unintended consequences is at work in world agriculture. For example, a U.S. nitrogen tax that might presumably be motivated for environmental benefit results in an increase in world greenhouse gas emissions. A similar situation occurs in the afforestation scenario in which crop production shifts from high-yielding land in the United States to low-yielding land and probably native vegetation in the rest of the world, resulting in an unintended increase in global greenhouse gas emissions.