Files
Abstract
The objective of this study is to analyze the
impact of crude oil prices on the EU-27 agricultural
sector in an era when the biofuels sector is expanding
because of the policy initiatives taken by the EU
Commission and member states. To this end, first a
baseline is set up for the EU-27 ethanol, grain, and dried
distillers grains markets. In the next step, two different
scenarios are run. The first scenario incorporates a $10-
per-barrel increase in the EU-27 crude oil price with the
ethanol import tariffs in place. The second scenario
incorporates the same shock with the ethanol import
tariffs removed. In the first scenario, higher crude oil
prices increase ethanol consumption, production, and
therefore grain prices. In the second scenario, the
impact of trade liberalisation is larger than the impact
of the higher crude oil price. So, grain prices decline in
this scenario despite an expansion in ethanol
consumption. If there were a high enough crude oil price
shock, which would affect the EU-27 ethanol market
more than trade liberalisation, the net impact on grain,
feed, and food prices from the crude oil price shock
would be mitigated by the increased trade from trade
liberalisation. The study shows that the impact of energy
prices on the EU-27 agricultural sector is increasing
with the emergence of the biofuels sector. It also
illustrates the importance of trade policy in responding
to higher crude oil and grain prices.