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Ethanol and a Changing Agricultural Landscape
By Scott A. Malcolm, Marcel Aillery, and Marca Weinberg
Economic Research Report No. (ERR-86) 64 pp, November 2009
U.S. policy to expand the production of biofuel for domestic energy use has significant implications
for agriculture and resource use. While ongoing research and development investment may
radically alter the way biofuel is produced in the future, for now, corn-based ethanol continues to
account for most biofuel production. As corn ethanol production increases, so does the production
of corn. The effect on agricultural commodity markets has been national, but commodity production
adjustments, and resulting environmental consequences, vary across regions. Changes in the
crop sector have also affected the cost of feed for livestock producers. As the Nation demands
more biofuel production, and markets for new biofuel feedstocks, such as crop residues, emerge,
the agricultural landscape will be further transformed.
What Is the Issue?
The Energy Independence and Security Act of 2007 (EISA) specifies a minimum total amount of
U.S. biofuel production through 2022, and also sets target levels for fuels produced from specific
feedstock categories. Together with volatile energy prices, this and earlier Federal legislation
supporting biofuel processing have increased demand for biofuels and the agricultural feedstocks
used to produce them. Greater demand for biofuel increases pressure on the agricultural land base
as more land is put into production and/or more inputs, such as fertilizer, water, and pesticides, are
applied to cropland. Rising demand for corn, the principal biofuel feedstock in the United States,
changes the profitability of growing corn and other “energy crops”. Farmers respond by changing
their planting decisions, which alter crop mix, land use, and use of inputs, such as fertilizer, which
then influence water quality, soil erosion, and other environmental indicators. The environmental
consequences of shifts in agricultural production vary by region.
This report also looks at the economic and environmental implications should crop residues, such
as corn stover and wheat straw, become commercially viable as biofuel feedstocks. Widespread
harvesting of crop residues as an alternative biofuel feedstock has implications for input use,
nutrient runoff, erosion control, and soil productivity.
What Did the Study Find?
Land for new biofuel feedstock production comes from two main sources: acreage not currently
in production and acreage shifted from other crops. The amount of additional land and displaced
crops associated with increased biofuel production differs by region. If the RFS targets are met,
total cropland is projected to increase by 1.6 percent over baseline conditions by 2015, with corn
acreage expanding by 3.5 percent and accounting for most of the cropland increase. While corn
acreage expands in every region, traditional corn-growing areas would likely see the largest
increases—up 8.6 percent in the Northern
Plains, 1.7 percent in the Corn Belt, and 2.8
percent in Lake States. Prices are expected
to increase slightly for most crops compared
with the baseline, although the price increase
could be reduced if corn yields increase at a
faster rate than expected.
Corn is a heavy user of nitrogen fertilizer.
Given the RFS targets, the resulting increase
in fertilizer use and shift from corn-soybean
rotations to continuous corn production
leads to deterioration of key environmental
performance measures. Nitrogen losses to
surface water and groundwater increase by
1.7 and 2.8 percent, respectively, while soil
runoff increases by 1.6 percent from the
baseline. Differences in geography, soil type,
and prevailing agricultural production activities lead to considerable variation in environmental effects among regions.
The increases in leaching to groundwater are greatest in the Lake States and Southeast, while increases in runoff to
surface water are greatest in the Corn Belt and Northern Plains.
As energy feedstocks that are also used as animal feed move more toward biofuel use, higher costs of animal feed
reduce returns to animal production. Production of livestock declines slightly by 2015 relative to the baseline—0.6
percent for farm-fed cattle and 0.5 percent for poultry—which may result in reduced manure nutrient runoff and
leaching in some areas.
Technical advances in biofuel production may soon allow other plant material to be used as energy feedstock. One
of the most readily available sources of “cellulosic” feedstock is crop residues. Increased use of residue could reduce
demand for corn, reducing requirements for most agricultural inputs. But replacing corn-based ethanol with biofuel
created from crop residues could have mixed results on environmental quality. Removal of large amounts of crop residues
requires replacement of nutrients through increased application of fertilizer and increases runoff and soil erosion.
Replacing 3 billion gallons of corn ethanol with crop residue ethanol could increase nitrogen runoff and leaching in
the Corn Belt, although reduced corn plantings in other regions cause these measures to decline in much of the United
States.
How Was the Study Conducted?
A regionalized agricultural sector mathematical programming model with linked environmental process models
was used to simultaneously estimate profit-maximizing decisions on land use, livestock production, crop mix, crop
rotations, tillage practices, and fertilizer application rates. In essence, we compare the market equilibrium prior to
EISA’s passage with the market equilibrium expected if the new RFS production targets are met in 2015, the year that
the corn-ethanol target peaks. The environmental impacts of land use and agronomic practices were estimated by
applying coefficients derived from a crop biophysical simulation model that incorporates soil, weather, and management
information to estimate crop yields, erosion, and chemical (pesticide and fertilizer) discharges to the environment
under various crop rotation and soil management regimes. Changes to U.S. agriculture and environmental
outputs from meeting EISA’s biofuel production targets for 2015 were evaluated against a baseline case that reflects
2007 U.S. Department of Agriculture (USDA) projections for biofuel demand in 2015 (developed just prior to EISA’s
passage).
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