U.S. Biofuel Policy Effects on Agricultural Commodity Exports

Key U.S. biofuel policies mostly target domestic use but indirectly affect agricultural markets. Biofuel support increases demand for U.S. agricultural commodity feedstocks, particularly corn and soybean oil given current practices, and consequently increases prices for these commodities. Unintended global responses may include higher food prices and greater land conversion to agricultural uses. However, past research is uncertain about the magnitude of effects of different U.S. biofuel policies and suggests that their effects depend on market conditions. Our contribution is to test systematically the link between petroleum prices and the effects of biofuel policies on U.S. agricultural commodity prices and exports. Using a partial equilibrium model of U.S. agricultural and biofuel sectors, we vary petroleum prices and other external factors over hundreds of combinations during a ten-year projection period. Comparing results with and without U.S. biofuel support programs to identify how these policies affect markets, we find that removing these policies reduces corn and soybean oil prices and exports substantially when petroleum prices are low, but have less pronounced effects when petroleum prices are high. The effects on other commodity markets follow a similar pattern for directly complementary or substituting goods, but are more attenuated for goods that are less directly related to the main biofuel feedstocks in the medium-term future. Our results highlight the sensitivity of U.S. minimum biofuel use mandates, particularly for petroleum prices, and the interaction of mandates and other biofuel policies.