Economic Repercussions


The recent increase in biofuels production has put a large amount of stress on the agricultural sector, specifically the prices of crops and other products. In the United States, the growth of the biofuel industry has increased the prices of corn, oilseeds, and other grains. In March 2007, the price of corn rose to over $4.38 a bushel, which is the highest level in ten years. Prices for wheat and rice have also risen to decade highs. The International Food Policy Research Institute has provided estimates on the potential impacts of increased demand for and production of biofuels. Global corn prices could rise by up to 20 percent by 2010 and 41 percent by 2020. The prices of oilseeds (soybeans, rapeseeds, and sunflower seeds) are predicted to rise by 26 percent by 2010 and 76 percent by 2020. Wheat prices are projected to rise by 11 percent by 2010 and 30 percent by 2020.

The increase of corn production for ethanol is reducing the amount of acreage available for other crops to be grown. Food suppliers have had to pay more than in the past in order to keep their supplies secure, and if these costs continue, the consumer will begin to feel the impact. Rising feed prices have also affected the livestock and poultry industries. Returns within these industries have begun to decline due to the higher costs, and if they continue to decline, production will decrease and prices for chicken, turkey, pork, milk, and eggs will rise.

Oil and Biofuels

The oil industry and the biofuel industry have a strong linkage in relation to price changes. Based on recent estimates of future energy consumption, it is clear there will be a continuous upward pressure on oil prices. This allows producers of ethanol and biodiesel to pay much higher premiums for corn and oilseeds than was conceivable a few years ago. As the price of oil rises, the price of grain rises as well.

Subsidies and the Amazon

The United States Government has created subsidies in order to encourage ethanol production. These subsidies (equaling $8.9 billion in 2005) are causing a shift in crop production from soy to corn. Because farmers are trying to qualify for these generous subsidies, U.S. corn production has risen 19 percent while soy production has fallen by 15 percent. This decrease in soy production has in turn created a major increase in global soy prices. The economic incentives for soy production has had a large negative impact on Amazonian forests and savanna-woodlands, where deforestation rates and fire incidence have increased significantly.