EthanolRFA today made use of the ICTSD report, commissioned by EU bodies/governments. The report, written by prof Babcock studies the effects of subsidies on crop prices. It is the work of an economist and is well done; it also studies the effects of the mandate and tariffs on prices hence it may be seen as relatively complete.
The June 2011 report – which makes use of economic modeling incl supply curves - suggests that volume effects on prices have been larger than subsidy effects alone, in spite of an admission that volume expansion must have been helped by subsidies over a period of time. One table in particular suggests that the effect of the subsidy on ethanol production may have been minimal but the same table suggests (again, this is a model) that distillers' profit margins were higher with subsidies than without, esp during four critical years (2007-2010). This admission by itself helps us to understand the motivations of ethanol players when considering new projects/expansions. Let me give you an example: during the year 2008/07 the historical profit margin (USD/gallon) was 0.19, and in his model without subsidies the profit margin is estimated at 0.07 USD/gal for the same period (it is 0.30 vs 0.22 in 2009/10). The difference is more than 100% in 08/07 and my understanding of this large – but theoretical - profit differential is that subsidies must have created a strong economic incentive for adding industrial capacity and contributing to taking more corn out of the feed/food market.
A table estimating the effects of the subsidies on eggs & meat prices makes use of a single variable (subsidies vs no subsidies) and has been used by EthanolRFA as a critical element in its defence of the subsidy. The combined effects of mandated use + subsidies + tariffs may have been a better representation of the market effects of the ethanol mandate on eggs and meat prices.
Ther report can be dowloaded from the following link http://ictsd.org/i/publications/108947/
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