By Madhu Khanna
Ethanol production has increased sharply in the United States in the past 10 years, leading to concerns about the expansion of demand for corn resulting in conversion of non-cropland to crop production and the environmental effects of this. However, a new study co-authored by a University of Illinois researcher shows that the overall effects of ethanol production on land-use have been minimal.
The research, published in the American Journal of Agricultural Economics, looks at the effects of ethanol production capacity and crop prices on land use in the U. S. from 2007 to 2014.
The increase in corn ethanol production has led to concerns that it would raise the price of corn and the demand for cropland; thus making it worthwhile to bring land that was not previously cultivated (such as grasslands) into production, says Madhu Khanna, a professor of agricultural and consumer economics at U of I.
“Studies have simulated the crop price effects of producing 15 billion gallons of corn ethanol and shown that they could lead to large expansion in crop acres,” Khanna says. “We now have actual data on land-use change that has occurred since the ethanol expansion began in 2007 and can test whether the predictions of these models have held up. Interestingly, the raw data shows that although corn ethanol production more than doubled between 2007 and 2014, total cropland acres in 2014 were very similar to those in 2007 and the crop price index was lower in 2014 than in 2007.”
Khanna and her co-authors, including Yijia Li, a graduate student at U of I and Ruiqing Miao from Auburn University, analyzed cropland data from the U.S. Department of Agriculture’s National Agricultural Statistics Service to explain the extent to which changes in cropland acres could be causally attributed to changes in crop prices and proximity to ethanol plants.
“Establishment of an ethanol plant in a county can increase corn acres and total cropland acres by reducing grain transportation costs and increasing the net revenue from corn production, creating an incentive to plant more corn,” Khanna says. “Additionally, higher crop prices that accompany the expansion in ethanol production can also create incentives for increasing crop acres even in locations that do not have an ethanol plant in their vicinity.”
Khanna adds that in examining the causes of changes in cropland acres that have taken place it is important to consider both of these effects. Previous studies have looked at one of the other, but not simultaneously at both.
“Corn ethanol capacity went up from about 6 to 14 billion gallons between 2007 and 2014 and the number of plants doubled, from about 100 to about 200, so it’s a pretty dramatic increase,” Khanna says. There was also a sharp upturn in corn prices between 2008 and 2012, but by 2014 the prices were almost down to 2007 levels again.
Khanna and her co-authors found that while crop prices had a greater effect than plant proximity, overall changes in land use were minimal over the seven years included in the study.
And while the higher corn prices did lead to an 8.5 percent increase in corn production, most of that increase came from conversion of other crops rather than non-cropland.
Total cropland increased by 2 percent between 2008 and 2012, so in the aggregate it was relatively small, Khanna says. “In fact, by 2014 a lot of the land which did convert into crops actually went back into non-crop, so the change in cropland, if you look at 2008 to 2014, was only by half a percent. We find that land use does respond to prices, but not by a lot.”
Studies using satellite images of cropland to compare acres in 2008 and 2012 have suggested that there was a significant and irreversible increase in those acres, all attributed to corn ethanol. But a careful analysis of the data all the way to 2014 shows that the overall impact of corn ethanol production on increasing total crop acreage was very negligible.
Moreover, the impact of crop price varied over time; it was a bit higher up to 2012 but then reverted almost back to previous levels in 2007-2008 by 2014 as crop prices dropped, Khanna concludes. “Our study shows that changes in land use should not be considered irreversible; as prices dropped after 2012, land reverted back to non-crop uses close to levels in 2007 and 2008.”
The paper, “Effects of Ethanol Plant Proximity and Crop Prices on Land-Use Change in the United States,” was published in the American Journal of Agricultural Economics and is available
online. Authors include Yijia Li and Madhu Khanna, Department of Agricultural and Consumer Economics in the College of Agricultural, Consumer and Environmental Sciences and the Center for Advanced Bioenergy and Bioproducts Innovation, University of Illinois, and Ruiqing Miao, Department of Agricultural Economics and Rural Sociology, Auburn University.