The Ripple Effect

FAPRI analysis report released for Senate energy bill's biofuel mandate. By Duane Dailey

A federal mandate to use more biofuels, as passed in the U.S. Senate version of the energy bill, would shift more crop acres into corn, boost corn prices, reduce soybean acreage, cut livestock production and have repercussions across all of agriculture. By placing a floor under the demand for biofuels, the mandate could increase prices for ethanol and biodiesel.

The mandate for biofuels will encourage farmers to plant an additional 2.3 million acres of corn by 2015 when the mandate is in full effect. That acreage increase comes mostly at the expense of soybean production.

This analysis is in "Impacts of a 15 Billion Gallon Biofuels Use Mandate" from the University of Missouri Food and Agricultural Policy Research Institute. The 33-page report compares changes under the mandate with a January 2007 FAPRI baseline under current law.

The report does not consider other provisions in Senate Bill 1321, such as the 3-billion-gallon annual increase in required use of "advanced biofuels" such as cellulosic ethanol after 2015, says Pat Westhoff, MU FAPRI policy analyst and author of the report.

By 2015, an additional 898 million bushels of corn, above baseline, would be required to meet ethanol requirements. That demand would boost corn prices by 20 cents a bushel, or a 6.6% increase. Soybean prices also would increase, as soybean acreage and production drops. That price increase would make soy biodiesel less competitive and production could fall slightly.

The mandate increases cash receipts for corn farmers, but it also increases their expenses through higher land and input costs and lowers their federal commodity supports. Crop cash receipts could go up $3.7 billion in 2015. However, net farm income, the money remaining to spend, increases by less than half, or $1.6 billion, according to MU-FAPRI.

In spite of changes to agriculture, the report shows only small price increases for consumers. U.S. food expenditures may go up $817 million, an increase of 0.1 percent relative to the baseline. "That is less than $3 per person per year," Westhoff says.

The biofuel mandate passed the U.S. Senate, but has not been taken up by the House of Representatives. The bill doubles the current mandate of 7.5 billion gallons by 2012.

FAPRI, a part of the MU Agricultural Experiment Station, is funded in part by the U.S. Congress to provide independent study of proposed legislation.

FYI
The FAPRI report is available online at www.fapri.missouri.edu.

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