The Long-Run and Short-Run Effects of Ethanol Production on US Beef Producers

Abstract

Biofuel production has received considerable attention as a means of reducing greenhouse gas emissions and mitigating global energy problems. The expansion of biofuel production has benefited the environment, but rising feed prices have negatively affected the livelihood of livestock producers. This study examines the direct effects of corn-based ethanol expansion on beef producers' short-run resource transition and long-run productivity in the United States. Dynamic panel models are specified to measure farm productivity and to investigate the effects of ethanol expansion on input-use decisions and the productivity of individual beef producers. Analyses of farm-level panel data show that in the short run, ethanol expansion is associated with employment losses in the beef industry to compensate for increased costs of intermediate inputs used in the production process; however, in the long-run, it increases farm productivity. The productivity of surviving beef producers has improved because less efficient producers could not survive due to the drastic burden of rising feed prices. Given the interconnections between the agriculture and energy markets through the growth of biofuel production, our results provide important insights in developing sustainable energy policies that could harmonize both markets and reduce unintended negative effects of biofuel production.