brady oecd farm biofuels june 2008 final

8/8/2019 Brady Oecd Farm Biofuels June 2008 Final

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Modeling the Global Economic and Environmental Implicationsof Biofuel Production: Preliminary Results for the Medium Term

Jorge Fernandez-Cornejo

Agapi Somwaru

Henry An

Michael Brady

Ruben Lubowski

Economic Research Service, U.S. Department of Agriculture. The views expressed are those of the authors

and do not necessarily correspond to the views or policies of the Economic Research Service or the U.S.

Department of Agriculture


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Project Objectives

To evaluate the global potential for biofuel production under differenteconomic, policy, and technological assumptions.

To examine the tradeoffs, as well as the distribution of benefits and costsacross countries, regions and sectors.

To examine the implications for production, trade, economic welfare,and land use in agricultural production.

To evaluate the impact of possible new technologies on world markets.


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This presentation will include:

A description of the FARM II Model Land and Water Resource Database Linking Resources to Agricultural Production Economic Model

Preliminary results on two model runs to the medium term (sono cellulosic):

Plans for the future


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Future Agricultural Resources Model (FARM II)

FARM is an integrated global CGE modeling framework designed toanalyze global changes related to agriculture and the environment.

Original model developed by Roy Darwin and collaborators.

Environmental Database: Links land cover and climate data with land andwater resources and production from agriculture and forestry.

Economic Database: GTAP database (version 7.2 ).


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Land and Water Resource Database

Land is classified by Land-cover: USGS EROS Data Center (2000)

11 Classes (1km2) Calibrate totals to FAO country level land-use data.

Agro-Ecological Zones Non-irrigated (rainfed) Irrigated

Allocate data on country level agricultural production based on AEZs.


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Land and Water Resource Database

Agro-Ecological Zones (AEZs) Length of Growing Season (LGS)

# of days soil temp 5C Minimum moisture requirement

Thermal Regime (TR)

Avg. daily temperature during growing season (6classes)

Irrigated and rainfed for each LGSxTR combination.

Plant Hardiness Zone (PHZ) Minimum temperature threshold.


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0

2000

4000

6000

8000

G S 1

G S 2

G S 3

G S 4

G S 5

G S 6

TR6

TR5

TR4

TR3

TR2TR1

Estimated Average Paddy Rice Production by Length of Growing Season and Thermal Regime Combination (Mt/ha)


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Linking Production to Resources

Allocation of Crop Production Use a series of regressions to disaggregate country level

production totals.1. Regress area for each crop on PHZ1-PHZ9 area by

country Minimum growing conditions for each crop

2. Regress production (Q) of each crop on crop area by AEZ by country AEZs each crop is typically grown in

3. Regress area of each crop area by AEZ by countrySecondary check on regression 2

Coefficient estimates used to1. allocate country level production to AEZs.

2. determine average production for each crop in each AEZ.


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Linking Production to Resources

12 AEZs used in model runs (6 irrigated and 6 rainfed).

Similar approach used for livestock and forest.

Livestock is allocated to both cropland and grassland(land cover classes).

For forests,1. Determine how wood products are distributed across woodlandtypes (land class).2. Determine average product by land class and AEZ.


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Economic Model Structure

Agriculture Fully specified production system

Each land category (12) and water availability Labor (skilled and unskilled) and Capital mobile between farm and

non-farm sectors Complete substitutability of factors and interactions - interlinkages

among all sectors- no nested functions

Non-agriculture Fully specified production system

Labor (skilled and unskilled) and Capital mobility between farmand non-farm sectors Complete substitutability of factors and interactions-interlinkages

among all sectors - no nested functions

The model is expressed and solved in levels not linear in rates or linear in percentage change


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Database Splitting and Rebalancing

Industries, commodities: split by country/region for biofuelssectors/industries

Output by commodity and industry Intermediate commodity usage by industry and source

Corn and other grains; soybeans and other oilseeds Export/Imports by commodity and destination at global level

Production structure: Labor Capital

Intermediate mix Land and Water by land categories reflecting 12 AEZs Technology


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Biofuels Database

Complete specification of upstream (input side) anddownstream (output side) linkages

Example: the case of US corn-ethanol:

CornCorn-milling Pet food

Cereal

Flour

Prepared feeds

Malt-beverages-spiritsO ther chem icals-- Ethanol

commingledGasoline


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Biofuels Scenarios

1. Medium Term Scenario One : Basic Scenario with trend productivity

For the U.S.Ethanol Production: Renewable Fuel StandardsRFSCorn productivity: trend yieldCorn-based ethanol production-technology

For BrazilEthanol Production: Brazilian Government projectionsSugar cane productivity: trend yield

Scenario two : W ith productivity above trend.Productivity above trend for the U.S. and Brazil

2. Long Term Includes biodiesel production in the USA, EU, and some Asian countries . Includes production of second generation biofuels


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Overview of Results

Welfare increases for Brazil and decreases for OPEC countries. Slightincrease in welfare for the U.S.

Increased corn area in the U.S. comes mostly from irrigated areas.

Corn area expands by about 5% less with above trend yields relative totrend.

Small decrease in soybean area in the U.S. and small increase inBrazil.


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Brazil Sugar Cane and S. EthanolFigure 2--Brazil's Sugar cane Production, Prices, and Land Use

change from the base

-30

-20

-10

0

10

20

30

40

50

60

Sugar Cane Production Sugar Cane Price Sugar Ethanol Price Land in Sugar Cane

%

Trend YieldAbove Trend


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U.S. Corn and Corn EthanolFigure 1--U.S. Corn Production, Prices, and Land Use

change from the base

-20

-10

0

10

20

30

40

50

Corn Production Corn Price Corn Ethanol Price Land in Corn

%

Trend YieldAbove Trend


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Percent Change in Area from Base

USA Brazil

Scenario 1 Scenario 2 Scenario 1 Scenario 2

Corn 18.3 16.4 1.4 1.4

Other Crops -0.1 -0.2 2.3 2.2

Other Grains -0.7 -1.5 87.2 84.2Soybeans -0.1 -0.3 2.2 2.2

Other Oilseeds 0.4 -0.2 7.0 6.3

Wheat -0.1 -0.3 0.5 0.4

Sugar Cane and Beets 1.9 1.5 52.4 51.0

Cattle -0.3 -0.5 -2.3 -2.3

Other Livestock -1.1 -1.6 -3.9 -4.0


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-0.5

0.0

0.5

1.0

1.5

2.0

U.S. OPEC countries

Brazil

EURest-of-world

Welfare under the two scenarios Selected countries% change from base

Trend Yield

Above Trend


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Motivates Further Consideration of:

Water

Livestock vs. crop productivity

Effect of biofuels vs. demand from China

on soybean demand.


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Next Phases of the Project:

Examine other medium term scenarios

Add biodiesel

Add cellulose feedstock options

Allow conversion of forestland to cropland andvice versa


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Improving the Environmental Database

Under consideration Slope

Elevation Greenhouse Gas Emissions

Livestock

Fertilizer Land Use Change Changing Agricultural Practices

Nonlinear temperature effects Yields increase with temperature up to a threshold

and then decrease after threshold.


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Thank You !


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Ra infed Agro-Ecological Zones in 199 7

Derived from : University of East Anglia. Climate Research Unit. CR U05 0.5 Degree 1901-1995 M onthly Climate Time-Series . East Anglia, Great Britain.

Model Aggregation - Regions


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gg g g ___________________________________________________________________

SYMBOL NAME _____________________________________________ SSA AfricaBRA BrazilCAN Canada

CHN ChinaE_U EU25IND IndiaMEX Mexico

OCE OceaniaOPE OPEC countriesOEA Other East AsiaOSA Other South AsiaOWH Other Western HemisphereROW Rest of the WorldRUS RussiaUSA United States

____________________________________________________________________


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Firms' Decisions

CONSUMPTION

OUTPUT

PRODUCTION INVESTMENT

LAND, WATER CAPITAL

Consumers' Decisions

World Commodity Market

World Capital Market

IMPORTS&

EXPORTS

FOREIGN ASSETS/DEBT

DIVIDENDS INTEREST

ENDOWMENTINCOME CURRENT PROFIT

Domestic Commodity Market

SAVINGS

CURRENT INCOME

Model ATTRIBUTES Model ATTRIBUTES

Neoclassical economic specification-Consumption-Saving-Production-Investment

LABOR

brady oecd farm biofuels june 2008 final

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