Does flexibility of biofuel mandates have the ability to mitigate price spikes? Modelling potential biofuel production reductions in the context of the recent invasion of Ukraine

This paper looks at how reducing biofuel production by introducing flexibility to mandates can have a potentially mitigating effect on price spikes. In particular we look at the recent price spike caused by the invasion of Ukraine and the consequent impact on global agricultural impacts. We model scenarios of reduced biofuel use in a global agricultural market model to see the impact on prices of the major cereals and oilseeds. A modest reduction of 10% of the use of cereals in biofuels can have a significant impact on the magnitude of the price spike for cereals and in particular maize. The modelled price spike in maize is 37% smaller after a 10% reduction in biofuel production in G7 countries. Results for wheat and vegetable oils are smaller but still significant at 11% and 27% respectively. This modelling demonstrates the importance of biofuel mandates in global agricultural markets and consequently their impact on global food security.