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30 CHAPTER 2


prices increased only about 3 percent during 2008 due to biofuel production, but this low value is largely because they only considered the impact of maize prices on retail food prices, for which raw maize only constitutes a small por- tion of the total value-added.


Rosegrant et al. (2008) use a partial equilibrium model to calculate the long-term impact on weighted cereal prices of the acceleration of bio- fuel production from 2000 to 2007 to be 30 percent in real terms. Maize, wheat, and rice prices were simulated to increase 47, 26, and 25 percent, respectively (applying Schepf’s conversion to the real-price estimates of the model), which is similar in order of magnitude to values calculated using the World Bank’s linkages model (World Bank 2008a).


In terms of the effects of U.S. biofuel policies, a study by the Food and Agricultural Policy Research Institute (FAPRI) attempts to measure the pure and joint price effects of the U.S. biofuel subsidies and tax credits. FAPRI’s study (Meyers and Meyer 2008) suggests that implementation of subsidies (in the absence of the tax credit) will raise maize prices by about 19 percent once the new long-run equilibrium has been established. The FAPRI study also estimates that the ethanol tax credit of US$0.51 per gallon supports maize prices by a slightly smaller amount—11 percent. Because of interac- tions between the two subsidies, it is estimated that joint implementation of both the Renewable Fuels Standard and tax credit supports maize prices by about 20 percent. Strong effects were also observed by FAPRI for other commodities because of competition for land: the wholesale price of soybean oil is projected to increase 73 percent under the joint subsidy + tax-credit scenario. A similar study by the Center for Agricultural Research and Develop- ment (CARD) found that the subsidy + tax-credit program supported the price of maize by 16 percent (McPhail and Babcock 2008). Both studies found the results to be highly dependent on the price of petroleum (or gasoline), which substitutes for government incentives and diminishes the relative impact of such incentives on maize prices. Schepf (2008) notes that neither study evalu- ates the effect of the U.S. import tariff of US$0.54 per gallon on imported ethanol from Brazil, although the CARD study points out that the maize price impacts would be greater if the tariff on Brazilian ethanol were eliminated. In addition, neither study includes the effects of the various grants and sub- sidized loans that have been made available to the U.S. biofuel sector for research and infrastructure development. Abbott, Hurt, and Tyner (2008) are also critical of some of the studies discussed above, insofar as they incorpo- rate substitution effects that are stronger than those observed in the real world. Biofuel lobby groups have also pointed out that ethanol only uses the starch in maize, preserving the maize oil and protein, so that about one-third


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