Empirical evidence on crop elasticities
Steven Berry and Wolfram Schlenker
Technical note on crop yield-price and land-price elasticities, key determinants of indirect land use change.
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This technical note addresses an important empirical issue in the study of biofuels and indirect land use. Incremental crops used by the biofuel industry are provided by some combination of decreased demand and increased production. That increased production, in turn, results from some combination of increased yields and increased land use. Because of the potentially large carbon costs of increased agricultural land use, the “indirect land use change” (ILUC) from biofuels has been the subject of increasing study and policy concern, beginning with the pioneering study of Searchinger, Heimlich, Houghton, Dong, Elobeid, Fabiosa, Tokgoz, Hayes, and Yu (2008). If higher prices drive higher crops yields, the amount of indirect land use associated with biofuel production will be reduced. In general, indirect land use change will be larger the larger the land-price elasticity and the lower the yield-price elasticity. This leads to an important policy interest in the yield-price elasticity of crop production. Our report provides direct empirical evidence on crop yield-price (and land-price) elasticities. These are critically important quantities in any attempt to simulate the effect of the massive bio-fuel policies that are presently implemented and/or under consideration around the world. The present report has a tight empirical focus and should be read in the context of Berry’s earlier report to CARB, the California Air Resources Board (Berry 2011).