The Impact of Biofuel Policies in the Future: Some Concluding Remarks

Abstract

We have analyzed the great food commodity price boom since late 2006 using a strict meat-and-potatoes approach. We do not discuss tulip manias or Malthus’ revenge. We do not wax poetic about how Henry Ford had ethanol as his fuel of choice for the Model-T (this time is different) or that prohibition was a conspiracy to monopolize the gasoline market. We did not use the fanciest statistical techniques known to mankind nor did we use Big Data—we were not flashy and, therefore, minimized the use of algos and routers. We did not run numerical simulations with potentially unbounded price expectations to generate bubble like price behavior. Nor did we indulge in instant economics or take shortcuts. We take the straight and narrow path to the core of the issue: the economics of blend mandates and the new price linkages between crops and biofuels and between biofuels and energy (gasoline/diesel and crude oil) prices where sectoral supply/demand shocks have a very different impact on food commodity prices than before. In doing so, we just stuck to the basics—an application of microeconomics to biofuels production and consumption, the price and quantity links backwards to the feedstocks and forward to energy and crude oil markets, with due regard to co-products, joint products and by-products along the way. We simply assume profit-maximizing agents under competition.