A study by researchers from Purdue and Stanford universities in the United States has shown future climate scenarios may cause significantly greater volatility in maize prices, which would be intensified by the USA’s federal biofuels mandate.

The biofuels mandate, introduced in the USA in 2004 and amended in 2007, suggests that, by 2022, the United States’ fuel supply should comprise 15 billion gallons of conventional biofuels, made principally from maize, as well as 21 billion gallons of other biofuels. The mandate is supported by subsidies to biofuel producers. In 2010, the United States produced 13.2 billion gallons of corn-based ethanol and 311 million gallons of biodiesel (towards a target of 1 billion gallons by 2022).

Globally, the biofuel industry has proven extremely controversial, particularly production of first generation fuels, which are made from plants traditionally grown for food and feed. Critics suggest these fuels cause environmental degradation through direct and indirect land use change, cause sharp rises in food prices and are equally as damaging to the environment as the fossil fuels they are replacing. However, whilst some studies have found the biofuel industry is impacting on the price of essential food items, such as the influential 2011 study by Geneva-based ICTSD, others have come to the conclusion that the effect of biofuel production on food prices is minimal.

The Purdue and Stanford teams’ findings, published this week in the journal Nature Climate Change, show that severely hot conditions in maize-growing regions and extreme climate events that are expected to impact supply would cause swings in maize prices. The researchers said that, when coupled with federal mandates for biofuel production, the price volatility could increase by about 50 percent over the period from 2020-2040 as compared to recent history.

"There could be quite a substantial increase in yield volatility, and that's due to the increased frequency and intensity of the high temperatures throughout the Corn Belt," said Thomas Hertel, a Purdue distinguished professor of agricultural economics. "Closer integration of the corn and energy markets through the ethanol industry could aid in buffering these shocks, but this would not occur in the presence of a mandate."

Under current rules, the federal government requires an increasing amount of ethanol and other biofuels be produced each year and blended with gasoline. Currently 39 percent of the US maize crop is used for ethanol, of which about one-third returns to the food system in the form of by-products fed to livestock. In the UK, the first such production factory opened in Hull this year; the factory uses wheat to create biofuels and creates feed from the by-products.

Climate modelling paints grim picture

The US study used a high-resolution climate model for the United States that takes into account climate history to produce 25-kilometer "snapshots" of the Midwest under projected future climate scenarios, Hertel said. Five simulations from 1950-2040 were combined to estimate future temperature extremes. Those predictions were paired with a model that uses temperature, precipitation and technology trends to predict corn yields.

The study finds that even if temperatures stay within the internationally recognized climate change target – a limit of 3.6 degrees Fahrenheit above pre-industrial levels – global warming is still enough to make damaging heat waves much more common over the U.S. maize Belt.

"Severe heat is the big hammer," said Noah Diffenbaugh, assistant professor of earth sciences at Stanford University and a study co-author. "We found that even one or two degrees of global warming is likely to increase heat waves enough to cause much higher frequency of low-yield years, leading to greater volatility of corn prices."

Using Purdue's Global Trade Analysis Project model and ignoring potential adaptations, the researchers predicted U.S. maize price volatility over the 2020-2040 period as compared with the 1980-2000 period. This increase would be further exacerbated by biofuel mandates, which would result in a further 50 percent increase in price volatility, Hertel said.

Under the projection, prices would rise in years when maize yields are hurt by extremely hot days. Hertel said that ethanol plants, forced to meet the federal mandate for biofuel production, would be forced to bid up maize prices in order to meet the blend requirement, thereby exacerbating the effect of the production shortfall on livestock producers and consumers.

Hertel said the study holds all other factors constant. It's possible that plant breeding to raise the temperature threshold at which yield losses occur, increased stockholding activities by farmers and agribusinesses, shifting growing areas northward, or changes in federal regulations could moderate the projected increases in price volatility.

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