Biofuels and food: Can Brazilian ethanol production affect domestic food prices?

Abstract

The increasing production of biofuels has promoted a debate on the effect of biofuels on food prices. This paper examines the impact of Brazilian domestic ethanol production on several local agricultural food commodities, using a structural autoregressive model with error correction (VECM). Other variables are included in the model, such as oil prices and exchange rate. Overall, results indicate that Brazilian ethanol has a low impact on domestic food commodity prices, even less than impacts of oil and exchange rate. Simulated price shocks for ethanol do not seem to have significant influence overestimated commodity prices. Results suggest that concerns expressed in the biofuel-food debate have little relevance in the Brazilian ethanol context