The impact of ethanol production on food prices: The role of interplay between the U.S. and Brazil

Food prices have increased rapidly in recent years, and so has ethanol production. Some studies have claimed that there is a connection between the two. The main purpose of this paper is to add to this literature by examining the influence that the interplay between Brazil and the U.S. in ethanol production has on food prices. Specifically, and controlling for other variables, which have been shown to affect food prices, we investigate whether sugarcane ethanol and corn ethanol production have similar impacts on food prices, and whether ethanol productivity affects food prices. We find a positive significant effect of Brazilian market share in world ethanol market on relative food prices. We also find that an increase of Brazilian cane ethanol area has a negative effect on relative food prices.