Biofuels Boom for the Global Livestock Industry

A paper (Taheripour F, Hertel T, Tyner W (2010) 'Implications of the Biofuels Boom for the Global Livestock Industry: A Computable General Equilibrium Analysis.' GTAP Working Paper No. 58 discusses the interactions between the biofuels and livestock industries.

Abstract

The past decade has seen rapid growth in the global biofuels sector – particularly in the US and the EU. This has had important implications for the global livestock industry – both by raising the cost of feed grains and oilseeds and by forcing onto the market a large supply of biofuel by-products, many of which end up in livestock feed rations.

This paper systematically investigates the impact of an expanding biofuels industry on the mix and location of global livestock production. Our results suggest that the impacts on specific livestock sectors in individual countries are quite varied. We estimate that growth in the US and EU biofuels industries actually results in larger absolute reductions in livestock production overseas, as opposed to in the biofuel producing regions themselves. This is due to the relatively greater transmission of grains prices into the overseas markets, as compared to the transmission of byproduct prices.

It was also found that the non-ruminant industry curtails its production more than other livestock industries, because it is less able to take advantage of low cost biofuel byproducts in its feed rations. Implementing biofuel mandates in the US and EU increases cropland area within the biofuel and non-biofuel producer regions. A large portion of this increase will be obtained from reduced grazing lands.

The biofuel producing regions are expected to reduce their coarse grains exports and increase imports of oilseeds and vegetable oils, while they increase their exports of processed feed materials. Though biofuel mandates have important consequences for the livestock industry, they do not severely curtail these industries. This is largely due to the important role of byproducts in substituting for higher priced feedstuffs.

Conclusions

In this paper, we offer a general equilibrium analysis of the impacts of US and EU biofuel mandates for the global livestock sector. Our experiments boost biofuel production in the US and EU from 2006 levels to mandated 2015 levels. We developed several experiments to decompose links between biofuel, livestock, crop, food, and feed industries and investigates competition between them for land. We show that mandates will encourage crop production in both biofuel and non biofuel producing regions, while reducing livestock and processed livestock production in most regions of the world.

The non-ruminant industry curtails its production more than other livestock industries because it is less able to take advantage of biofuel byproducts. An important finding of this study pertains to the relative impact of US and EU biofuel programs on the livestock sectors in those regions, versus the rest of the world. Due to the relatively undeveloped international trade in biofuel by-products, we estimate that the US-EU mandates will result in larger absolute reductions in livestock production overseas, as opposed to in the biofuel producing regions themselves. This is due to the relatively greater transmission of grains prices into the overseas markets, as compared to the transmission of byproduct prices. Of course, this result could change in the future with greater international integration of byproduct markets.

The numerical results suggest that the biofuel mandates reduce food production in most regions while they increase crude vegetable oil in almost all regions. Implementing biofuel mandates in the US and EU will increase croplands within the biofuel and non-biofuel producer regions. A large portion of this increase will be obtained from reduced grazing lands. The biofuel producing regions are expected to reduce their coarse grains exports and raise imports of oilseeds and vegetable oils. While all livestock industries use more biofuel byproducts in their animal feed rations, the dairy and other ruminant industry benefit most from the expansion of DDGS. We conclude that, while biofuel mandates have important consequences for the livestock industry, they do not harshly curtail these industries. This is largely due to the important role of byproducts in substituting for higher priced feedstuffs.