the case of the unconstrained allocation between the two first generation biofuels in the EU. Table A3.4 (Appendix) shows palm oil production in Malaysia and Indonesia for all the scenarios examined.
3.6.3. Feed displacement by DDG
The baseline assumptions regarding the use of DDG as animal feed in the EU are mainly based on observations in the USA. Data on DDG use in the EU are scarce. However, it is likely that in the EU, where animal diets and the structure of feed markets are different, and given the significant vegetable protein deficit, protein- rich wheat DDG replaces a higher proportion of protein in animal diets. To explore the sensitivity of the simulated impacts to these assumptions, the original displacement rates have been modified in order to match more closely conditions in the EU and recent experimental data.
The shares of DDG allocated to ruminant and non-ruminant feed were set equal to the shares in total EU compound feed use of these two sectors, namely 0.321 and 0.679, respectively32. In both cases, one kilogram of DDG is assumed to replace 0.68 kilogram of coarse grains and 0.60 kilogram of oil meals33. Due to the higher displacement rate of oil meals and the overall more effective feed replacement by DDG represented by these new coefficients, relative to the baseline, feed demand is slightly higher for coarse grains and lower for oil meals. Consequently, compared to the baseline scenario, the total EU area planted with grains, oilseeds and sugar beet is slightly higher (+0.2%) as more coarse grains (+0.4%) are demanded. On the other hand, the oilseed area is a little lower (-0.1%). At the same time, since a high share of EU oil meal demand is met by domestically processed oil meal from imported oilseeds, the reduction in oilseed imports is more pronounced (-8.9% net trade). At world
32 Source: AGLINK data base
33 High end of range given in Birkelo et al. (2004).
level, the downward adjustment in total oilseed area produced by the modified assumption is a little larger than the expansion in the world area of coarse grains. The overall effect on the global area of bioenergy crops (of grains, oilseeds and sugar crops) of modifying the assumptions for the EU regarding DDG use and displacement rates is a small reduction (-0.05%, or -410 thousand hectares).
3.7. Summary and concluding remarks
AGLINK-COSIMO is designed to model market outcomes, which are driven by price signals. Land use changes are the consequence of decisions to supply more or less of particular commodities to the market, given current technological conditions. Thus, reported land use changes are derived from simulated changes in market outcomes; their credibility depends on that of the market activity that drives them. This section summarises the main market and land use results, first for the EU and then for third countries and/or globally.
The main effects of EU biofuel policies on EU markets and commodity balances by 2020 are: • Large effect on EU output of ethanol (+179%)
and biodiesel (+568%) , and on imports of both biofuels (+614% for ethanol and +407% for biodiesel),
• Much higher imports of vegetable oils (+265%), lower imports of oilseeds (-17%), • Important role of DDG as a replacement for
cereals in the animal feed market,
• Biodiesel price is 40% higher, ethanol price is about 18% higher (similar pattern for world market prices).
Main effects of EU biofuel policies on EU land use:
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• Slower decline of the total arable area over the period 2008-2020 (-6.5% instead of -8.6%. That is due inter alia to 1.5% higher cereals area and 5.6% higher oilseeds area, • Total pasture area is 0.9% lower in 2020
with EU policies than without them.
The main effects of EU biofuel policies on world commodity balances and land use by 2020 are:
• With much higher EU imports of biodiesel and higher biodiesel prices, the USA becomes a net exporter to satisfy extra world market demand.
• With higher EU imports of ethanol (by 2966 million litres) and the rise in ethanol price, Brazil's ethanol exports are higher (by 3065 million litres).
• Total land used for cereals, oilseeds and sugar crops worldwide is 0.7% (5.314 million hectares) higher, implying an increase in cropland expansion over the period 2008- 2020 of 3.4%.
• The resulting land use changes due to EU biofuel policies for the total area of wheat, coarse grains and oilseeds are smaller than the year-on-year fluctuations of cropland during the period 2000-2008.
• The largest proportionate differences in total arable area occur in the EU and Argentina (+2.2% and +2.3%, respectively), although in both regions cropland still declines even with EU policy in place.
• Sugar (cane and beet) area higher by 2.1- 2.2%, also oilseed area (1.5%) and wheat (less than 1%).
Several other important observations should be made regarding land use:
• If EU biofuel policies stimulate a faster rate of crop yield growth, the impact of EU policies on global land use would be smaller. In particular, if it is assumed that EU biofuel policies alone have an additional impact on yield growth rates of 0.3% per year, this is sufficient to fully counteract the expansionary impact of these policies on the global area of wheat, coarse grains and sugar.
• The use of by-products as animal feed also plays a role in reducing the land required to meet the biofuels demand.
• Land use effects in Indonesia and Malaysia are not simulated; however, vegetable oil production in both these countries is much higher due to EU biofuel policies, virtually all of which feeds into net exports. The land use implications depend crucially on yield growth in these countries, which might accelerate to meet the extra demand induced by EU biofuel policies.
The simulated effects of EU biofuels policies imply a considerable shock to agricultural commodity markets, but precise magnitudes need to be treated with some caution. In particular, various assumptions were needed for calibrating behaviour in biofuel markets, for lack of sufficient historic information. As for the simulated land use effects in third countries, we point out that AGLINK-COSIMO does not consider multi-cropping. Moreover, certain crops are not modelled. If their area is lower as a result of relative price changes set in train by EU biofuel policies, this could compensate for some of the land expansion of the crops simulated in the model. Furthermore, the stronger demand for land-using commodities resulting from the higher demand for biomass for biofuel production may induce stronger technological progress and investment than assumed in the present structure of the model, which is normally used for more gradual changes. An idea of the importance of the latter has been given in the sensitivity analysis. Finally, the model cannot
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