LONG TERM GLOBAL BIOFUEL PROJECTIONS

WITH AGRICULTURAL RESOURCE USE UNDER

DIFFERENT
OIL PRICE SCENARIOS

John Miranowski
Professor of Economics, Iowa State University
with

Alicia Rosburg, Assistant Professor, University of Northern Iowa

Introduction
Sabbatical opportunity at FAO (2011)
LONG TERM GLOBAL BIOFUEL PROJECTIONS WITH AGRICULTURAL
RESOURCE USE TO 2080
What would long term global market model tell us to expect?
Given feedstock demand for energy content, crude oil price will drive

biofuel or parity price for foreseeable future.

Renewable energy programs have limited long term (LT) impact (US-

RFS & EU-RED) Fossil fuel attacks on mandates, subsidies, put

renewables at risk. (DSM Register, June 18, 2012). Fracking NG, Oil
Implications for resource use are more complicated but technology

and productivity growth will limit LUC and other input use.

Rationale and Framework of Analysis

Important resource problems are LT issues. T.W. Schultz
If biofuel is small component of energy market, the demand

for biofuel is perfectly elastic for a given oil price

Energy content of feedstock is demanded by biofuel

processor. The processor can only pay an amount equal to

energy value of biofuel, plus co-product value, less cost of
feedstock conversion.
The minimum amount the feedstock producer will accept to

deliver feedstock reflects production, harvest, storage,

transport, and opportunity costs.

Rationale and Framework of Analysis

Parity price graphs relate maximum price the biofuel

process can pay for feedstock given alternative oil price

scenarios.
In the LT, the price of oil puts both floor and ceiling on

commodity and biomass feedstock prices.

Figure 1. Breakeven sugarcane price (PD) BEFS Peru

(Commercial/smallholder coastal)

Figure 1 (cont). Breakeven sugarcane price (PD) BEFS Tanzania

(BEFS Tanzania Scenario 1)

Figure 2. Price gap (PS PD)

(Maize only)

Rationale and Framework of Analysis

In LT, inputs are variable and substitutable. Short term market

shocks and responses not issue.

Government biofuel incentives and mandates put upward

pressure on food and feedstock prices, but not LT phenomena.

Technological change and productivity growth lower unit costs

and competitive markets lead to lower profit margins and

sectoral adjustment. Improved resource use efficiency - LUC,N.
Agricultural commodities follow the traditional market paradigm

of declining LT real prices.

Figure 3. Select real commodity prices, 1965 2010

Long Term Biofuel Breakeven Model

Determines maximum LT breakeven price the processor can

pay for feedstock given oil price scenarios and biofuel

conversion costs.
Determines minimum LT breakeven price producer is willing to

accept given feedstock production, harvest, storage,

transportation, and opportunity costs.
Budgeting model with step-wise LT supply curve.
Gap between producers willingness to accept and

processors willingness to pay indicates when LT biofuel

market does not meet necessary sustainability condition.

Background Studies and Database

We assume three LT crude oil price scenarios - $60, $100, and

$140/bbl
Schmidhuber papers, various years.
FAO BEFS Reports - Peru, Tanzania, Thailand
IEA Biofuels Study, 2011
Kazi, et al, 2011
ALTF Report, 2009, NRC Report, 2011, Rosburg and Miranowski,

2011

Figure 4. Price gap per gallon (PS PD)

Figure 4 (cont). Price gap per gallon (PS PD)

LT Breakeven Is Not Only Sustainability Consideration

Competitive biorefineries are large scale plants requiring

continuous throughput of high-density, dependable

feedstock supplies.
Countries and regions need price elastic feedstock with

excess supplies. Otherwise, any supply disruptions may

force biofuel plant shutdowns. Small-scale options?
LT productivity growth in feedstock production and

conversion to biofuel.

Figure 5. Price gap (PS PD), current minus future values

with productivity growth at $100/bbl oil

Figure 5 (cont). Price gap (PS PD), current minus future

values with productivity growth at $100/bbl oil

Summary and Conclusions

First generation biofuel ($100/bbl oil) largely competes because

of government intervention (except sugar). Other feedstock are

possibilities with high LT oil price ($140/bbl). NG
If LT oil price is high and tropical countries can expand

feedstock supplies to sufficient quantities, they may become

competitive biofuel suppliers.
Productivity growth in feedstock production and conversion

may have important implications for biofuel. Continue research!

Anticipate LT global cropland base will not expand because

limited biofuel expansion and productivity growth.

Feedstock Costs and Price Gaps for Biofuels

Figure . Processor breakeven feedstock prices @ $100/bbl oil

Figure . Feedstock cost per gallon (PS reported)

Figure . Price gap per gallon @ $100/bbl oil, (PS PD)

Figure 4. Price gap per gallon (PS PD)