Study shows that corn ethanol does not increase the price of corn in domestic and international markets

The unpublished article “Did the entry of the corn ethanol industry in Brazil affect the relationship between domestic and international corn prices?” (Did the entry of corn ethanol industries in Brazil affect the relationship between corn prices in national and international markets?), derived from a research project developed by Agroicone in partnership with professors Marcelo Justus (Unicamp) and Luciano Rodrigues (FGV), recently published by the magazine GCB Bioenergy, an internationally renowned magazine in the area of ​​sustainable energy, brings a detailed analysis on the rapid expansion of corn ethanol production in Brazil and its effects on domestic and international corn prices. The results generate important implications for the food versus energy debate, which currently limits the greater inclusion of biofuels in the global energy transition.

Key Findings

The state of Mato Grosso has emerged as the main producer of corn ethanol, representing 73% of national production in 2017. Corn ethanol production in Brazil has grown exponentially and is expected to reach 6 billion liters in 2023/24, with projections of reach 12,7 billion liters by 2032.

The research shows that, despite the increase in demand for corn for ethanol production, there is no evidence that domestic corn prices in Brazil were impacted by the increase in ethanol production and that domestic prices are impacted by international prices, but the opposite doesn't happen. This is due to the improvement in agricultural productivity, with the adoption of new technologies and multiple harvesting practices. The study highlights that the diversification of the Brazilian energy matrix, including corn ethanol, contributes to the country's sustainability and energy security.

Analysis of corn prices: an international and national perspective

Using time series of monthly corn prices from May 2005 to August 2023, in Brazilian and international markets, and controlling for different events that may have affected global agricultural markets (Russia and Ukraine war, Covid-19, crop failures, among others), the study employed econometric cointegration models to estimate the short- and long-term relationships between corn prices in domestic and international markets.

The results indicate that shocks in international prices impact domestic prices, but the opposite cannot be statistically proven. It was estimated that a 1% variation in the growth rate of the international corn price will result in a 0,4% variation in the growth rate of the corn price in Mato Grosso in the short term, and 0,64% in the long term. -term. Furthermore, price shocks in the world market are transmitted to the Brazilian domestic market and dissipate only after approximately six months. 

Discussions and implications

The results of the study are an indication that the production of corn ethanol in Brazil did not increase the international price of corn and did not compromise food security, as suggested by the stable price relationships identified. The ability to expand second-crop corn production by intensifying the use of soybean areas where second-crop corn was not previously planted has resulted in a greater supply of grain to ethanol plants without affecting first-crop acreage and availability. of grains for food other uses

The publication of this study in GCB Bioenergy highlights its importance for society, corn producers and public policy makers. The magazine is recognized for its rigorous approach to topics related to sustainable energy, at the interface between biological and environmental sciences and the production of fuels and bioproducts.

More information at doi.org/10.1111/gcbb.13181