Is ethanol production responsible for the increase in corn prices?

This paper aims to investigate the effects of the production of ethanol, a renewable biofuel, oil prices, population, and exchange rate on corn prices in the US (1985:m1-2020:m7) using a nonlinear smooth transition model. According to the findings, (i) ethanol production (beta 1 = 0.072, p < 0.01) has an increasing effect on corn prices. (ii) Oil prices (beta 2 = 0.064, p < 0.05) and population (beta 3 = 0.851, p < 0.01) put a pressure on corn prices. (iii) The increase in the real exchange rate (beta 4 =-2.142, p < 0.01) has a decreasing effect on corn prices. The estimation results provide several critical policy implications for ethanol-food competition within the framework of sus-tainable development policies. First, ethanol production puts pressure on corn prices. Second, policy-oriented research on the biofuel-food competition can provide guidance to ensure sustainability. Finally, in the trans-formation process of the ethanol industry, technological innovations (use of second or third-generation biofuels) can moderate the food-fuel nexus.

Automated summary

The study shows that ethanol production increases corn prices, while oil prices and population exert pressure on corn prices. An increase in the real exchange rate has a decreasing effect on corn prices.