Oil Price Effects on Land Use Competition – An Empirical Analysis

24 Pages Posted: 18 Jan 2013

See all articles by Matthias Diermeier

Matthias Diermeier

Independent

Torsten Schmidt

Rhine-Westphalia Institute for Economic Research (RWI)

Date Written: May 14, 2012

Abstract

The increasing use of food commodities for biofuel production has substantial impact on prices and quantities of these and other food commodities. It is therefore likely that this trend also intensifies the competition for arable land. However, evidence for this hypothesis is generated by calibrated models while empirical evidence is rare. In this paper we analyze the eff ects of crude oil price and prices of input factors for biofuel production on prices, areas and quantities of selected food commodities empirically performing Granger causality and cointegration tests as well as calculating impulse response functions. On the world aggregated level we reveal that the crude petroleum price only Granger causes the price of maize and wheat but the area used for the production of maize, soybean oil, sugar and wheat. The effect on wheat indicates an indirect effect on land use. Moreover, the price index of fats and oils has a stronger effect on prices, areas and quantities of other food commodities. At the country level, we identify that for the U.S., the maize price is the key variable influencing area and quantity of cereals. Additionally, in Indonesia and Malaysia we find that the palm oil price has significant effects on the area and quantity of rice. Despite these positive effects of commodity prices on land use we find no evidence for direct land competition between oil crops and cereals..

Keywords: biofuel, food commodity prices, crude oil price, Granger causality

JEL Classification: L71, Q11, Q42, C32

Suggested Citation

Diermeier, Matthias and Schmidt, Torsten, Oil Price Effects on Land Use Competition – An Empirical Analysis (May 14, 2012). Ruhr Economic Paper No. 340, Available at SSRN: https://ssrn.com/abstract=2084170 or http://dx.doi.org/10.2139/ssrn.2084170

Matthias Diermeier

Independent ( email )

Torsten Schmidt (Contact Author)

Rhine-Westphalia Institute for Economic Research (RWI) ( email )

45128 Essen
Germany

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