The Impact of the Bio-Ethanol Production to the World Grain Market: A Case Study of World Maize Market

Abstract

The world food supply has been expected to undergo a serious shortage because of the extremely rapid development of a number of countries, especially BRICs (Brazil, Russia, India and China). In addition, it has also been predicted that an expansion in production of biofuels will not only intensify that shortage but also increase the price of food. However, the price effects on farming activity and the contribution of technological progress to increase the yield are issues that have not been considered in current papers. The aim of this study is to simulate the impact of productions on the international grain market, including the effect of price and the contribution of technological progress to agricultural production, mainly focusing on the international maize market from 2005 to 2020, by establishing a simultaneous equation model. It is shown in this study that the international price of maize has not been increasing, although it fluctuates every year. The reason is that the time trend variable as the proxy variable of technological progress, indicates that technological progress increases production even though the harvested area of maize remains at its usual level or decreases. The results indicate that the food crisis that was widely anticipated has not occurred and that the technological progress is an important reason.