The Long‐run Impacts of Ethanol Subsidies and Ethanol Expansion on the US Corn and Pig Sectors
In this article, we derive how much the corn and livestock sectors have been impacted by US ethanol subsidies and ethanol expansion, and whether these impacts should be expected to persist in the long run. We use a ‘backcasting’ approach for the period 2005 to 2010 coupled with a long‐run condition that requires all sectors to return to normal profits by 2010. We found that of the US$ 2.88 per bushel corn price increase between 2004 and 2010, 3 per cent (US$ 0.09) can be attributed to ethanol subsidies, 26 per cent (US$ 0.75) to market‐based expansion of ethanol, and 71 per cent (US$ 2.04) to other factors outside the ethanol sector, e.g. strong domestic and foreign corn demand for feed. With a larger share of the price increase explained by market‐based ethanol expansion, the impact can be sustained even in the absence of government intervention. If the size of the ethanol sector remained at the 2004 level, the corn price in 2010 would have been 17 per cent lower, the swine farm price and pork retail price would also have been lower by 8 per cent and 1.6 per cent, respectively. Finally, we project that any development in cellulosic ethanol that uses corn stover as feedstock will be favourable to the livestock sector.