Land Quality The USDA database divides the global land area into nine land categories based on climate and soil properties (Eswaran et al. 2003) labeled I to IX (see Figure 3). They are classified according to their suitability for agricultural production, category I being the most productive. Land classes unsuitable for agricultural production, i.e., categories VII to IX are disregarded in our study. We aggregate the remaining six (I through VI) based on their characteristics. Category I and II are grouped and referred to as land class 1 in the paper, III and IV as class 2, and V and VI as class 3. We thus have three land classes indexed i 1, 2,3 . Land class 1 benefits from a long growing season and soil of high quality, class 2 has a shorter growing season due to water stress or excessive temperature variance. Class 3 is of the lowest quality. Initial acreage available for each land class can be divided into cultivated land ( L i ) and marginal land ( ) L s i . Cultivated lands may be allocated to different uses indexed by j which denote food crops, first- gen or second-gen biofuels. Cultivated land area can be increased by bringing marginal lands under production. Total available marginal land equals 1.6 billion hectares (FAO 2008a). Forests under plantations or under legislative protection are not included in the model. The parameters for land conversion costs, given by (2) are 1 30 and 2 1.5 . They are assumed to be the same across land class and region. 59 Then, we have L ( t 1 ) L ( t ) l i s ( t )
According to press reports the Environmental Protection Agency may reduce biofuelmandates in 2014 from 14.4 billion gallons to 13 billion gallons. 1 The likely justification for such a reduction is the belief that ethanol consumption cannot easily exceed the quantity that can be consumed in E10—gasoline that contains 10 percent ethanol. Many groups would applaud such a decision. Oil refiners would face practically no costs of complying with Renewable Fuel Standard mandates because they would be easy to meet. Livestock organizations and anti-hunger advocates are both against the use of corn to produce transportation fuel. Corn is the chief feed ingredient in livestock rations so diversion of corn from feed to fuel increases feed costs. Most anti-hunger groups simply oppose corn ethanol on the moral grounds that a crop that could produce food should not be used to produce fuel.
The second finding is that if the current price of ethanol relative to gasoline accurately reflects the value of ethanol to blenders, then the price of ethanol will be supported at quite an attractive level as long as ethanol quantities are not pushing up against the blend wall. This implies that ethanol plants will be a strong competitor for corn even without a mandate. In the no mandate scenario simulated here, ethanol production drops by only 500 million gallons when the mandate is waived. This 500 million gallon drop in supply is enough to raise the value of ethanol in the marketplace to support 11.5 billion gallons of production and continue high corn prices. The desire by livestock groups to see additional flexibility on ethanol mandates may not result in as large a drop in feed costs as they hope.
In their synthesis of several studies that assessed the impact of biofuel de- velopment on foodprices, Gerber et al. (2009) found that it is difficult to rec- oncile the various calculations of the impacts of biofuel production on food and commodity prices to-date. This is largely due to the intricate set of as- sumptions, the differences in the baseline scenario, and the projection horizon they are built upon. However, despite considerable differences in projection re- sults, methodologies and assumptions, some common trends can be observed: the latest EU and US biofuel programs are expected to raiseprices of vegetable oils the most, with smaller price increases for corn, wheat, and soybean; whilst the price of oilseed meals is widely predicted to decline. They also conclude that the future impact (i.e. beyond the short-term crisis) of the current bio- fuel policies and inherent production trends on food bills should decrease and 2007/08 should be considered the peak of food price growth.
Collins (2008) presents an analysis of the current situation in the US and cites several elements that contributed to the price increment of farm products, but devotes special attention to biofuels. The UNCTAD (2008) however claims that from a global perspec- tive the food crisis can be reconducted to the simultaneous interplay of variety of causes. The recent rise in foodprices was not due to energy costs, climatic conditions, specula- tion or biofuel production alone. Structural long-tem issues affecting the global supply have played an important role. Relatively low or decreasing agricultural productivity in developing countries is noted as a fundamental factor. The lack of public and private investments in the rural and agricultural commodities in less developed nations, despite the relative importance of agriculture in their economies, has highlighted a dangerous failure in their development strategy and constituted a constraint in the evolution of sup- ply. Issues concerning oligopolistic market structures (especially among food-retailers) and protectionist policies have contributed the surge in foodprices between 2001 and 2008.
The empirical literature has measured the performance of mergers and acqui- sitions (M&As) employing two approaches which yield conßicting results. The so-called event studies investigate how the stock market values the merger when it is announced by comparing the share prices a few weeks before and after the event. Even though there are numerous event studies, their results are consistent. The shareholders of the target Þrms beneÞt, and those of the bidding Þrms gen- erally break even. The combined gains are mainly positive. 1 The second strand of the literature compares accounting proÞts a few years before and after the transaction. A robust result is that mergers lead to a signiÞcant reduction in the merging Þrms’ proÞtability compared to a control sample of Þrms from various industries. Surveys typically conclude that, on average, mergers are unproÞtable. 2 If all empirical evidence is correct, we are left with three puzzles: Why do unproÞtable M&As occur? How can the value of Þrms increase when proÞts are reduced? Why do some Þrms volunteer as buyers when the targets capture the whole stock market surplus? This paper attempts to resolve these puzzles by proposing a single explanation for all the stylized facts.
Second and third generation biofuels which utilize non-food commodities unlike first generation biofuels, pose minimum threat to food security and natural ecosystems (Abideen et al., 2012). They are produced from a generally less expensive biomass such as forest/agricultural/ animal/municipal wastes and commodities which might be efficient in their water and nutrient requirements. Feedstocks which are grown using saline resources are highly productive on unit area basis compared to the productivity obtained by fresh water feedstocks (Gul et al., 2013) however, challenges like efficient conversion of biomass into biofuel still exist (Zhu and Ketola, 2012). In case of algae, geographical limitations exist in areas like Canada where temperatures for a large part of the year are below the optimal requirement for algal growth (Borowitzka and Moheimani, 2013; Lee and Lavoie, 2013). The future of biofuels hence necessitates combination of the three generations of feedstocks to cope with increased worldwide demand and depletion in the world’s oil resources. Presented below is an overview of some promising non-food resources for biofuel production.
reducing the Þrms’ proÞtability. If antitrust could consistently block mergers motivated by preemption, shareholders would be better oﬀ.
Is antitrust good for consumers? Since anti-competitive mergers raise out- siders’ proÞts, it has been argued that they should also raise their stock market values. Surprisingly, however, event studies indicate that even mergers challenged by antitrust authorities do not increase competitors’ share prices. Based on this evidence, Eckbo and Wier (1985) argue that “all but the ‘most overwhelmingly large’ mergers should be allowed to go forward”. However, in Fridolfsson and Stennek (2000b) we show that event studies cannot detect anti-competitive merg- ers, since such mergers may reduce outsiders’ stock market value. This result is an immediate corollary of Lemma 1 of the present paper. Hence, the opposition toward merger control expressed by Eckbo and Wier is not well-founded.
CHAPTER I INTRODUCTION
Recent sharp increase in food and energy prices has raised serious concern in many countries. Major internationally traded crops have experienced price jumps over the last few years (Figure 1). The prices of maize and wheat have more than doubled, and the rice price has reached unprecedented levels since 2003. The prices of other food products, such as dairy, meat, and poultry have also increased significantly (FAO 2008a, von Braun et al. 2008). Moreover, these high agricultural prices do not appear likely to return to their 2000–2003 levels, and fluctuations may even become higher (von Braun et al. 2008). One key factor of these price hikes was the great increase in energy prices. The oil price has climbed to all-time high of more than 140 US dollars per barrel in early 2008 (von Braun et al. 2008). Although the price has dropped back to previous level afterwards, concern for food and energy insecurity still remains. The increase in oil price has affected food markets not only by increasing food production costs, but also by encouraging biofuel production which diverts food commodities from food and feed use and diverts land from food production.
5 Food policy
Tanzanian food policy is characterized by relatively low level of intervention in agricultural markets. Over the period 1986-1995, Tanzania dismantled a centralized system of government control over agricultural production, processing, and marketing. Over 1986-89, private trade in food crops was deregulated. Controls on internal movement of food was abolished in 1987, and pan-territorial prices were eliminated in 1989. In the early 1990s, input markets were liberalized, including legalization of private fertilizer importation and distribution, the phased elimination of fertilizer subsidies, and decontrol of input prices. During this time, the role of state marketing boards in the management and marketing of traditional export crops was also scaled back. At the same time, macroeconomic reforms led to a decline in the rate of inflation and the adoption of a market-based exchange rate, which provided improved incentives for exporters.
V. Summary and Conclusions
The increase in internationally traded foodprices from January 2002 to June 2008 was caused by a confluence of factors, but the most important was the large increase in biofuels production from grains and oilseeds in the U.S. and EU. Without these increases, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate. Land use changes in wheat exporting countries in response to increased plantings of oilseeds for biodiesel production limited expansion of wheat production that could have otherwise prevented the large declines in global wheat stocks and the resulting rise in wheat prices. The rapid rise in oilseed prices was caused mostly by demand for biodiesel production in response to incentives provided by policy changes in the EU beginning in 2001 and in the U.S. beginning in 2004. The large increase in rice prices was largely a response to the increase in wheat prices rather than to changes in rice production or stocks, and was thus indirectly related to the increase in biofuels. Recent export bans on grains and speculative activity would probably not have occurred without the large price increases due to biofuels production because they were largely responses to rising prices. Higher energy and fertilizer prices would have still increased crop production costs by about 15-20 percentage points in the U.S. and lesser amounts in countries with less intensive production practices. The back- to-back droughts in Australia would not have had a large impact because they only reduced global grain exports by about 4 percent and other exporters would normally have been able to offset this loss. The decline of the dollar has contributed about 20 percentage points to the rise in dollar foodprices.
The transition process and the entry of Slovenia into the enlarged EU- 25 have brought considerable changes in agro - food retailing and pricing. Different efficiency and market leader strategies have been implemen te d to respon se to the increasing competitive press ures in agro - food retailing and pricing. Whereas in an initial stage of transition several small shop s were set up, the later develop me n t s were reversed by less new entries and more exits particularly by merging and taking over of the previous retailing struct ure s. This merging and concentration process of the Slovenian retailing sector was under the umbrella of the biggest Slovenian retailers Mercator, which has become one of the largest retailing chains in Slovenia up to recently and even after the entry of foreign chains of super m a r k et s. Marketing of several agro - food prod ucts have now been channeled thro ug h chains of superm a rk e t s and recently hyper m ar ke t s. These are new develop me n t s, which explore some similarities with some other develope d EU countries, particularly in the neighboring Austria.
It is worth mentioning that as part of our empirical analysis we also conducted a four-variable error correction model (ECM) as well as single equations error correction representations. The four- variable approach was disregarded and found it to be inappropriate. This is because a Johansen Trace Test on a VAR that includes only the four commodity prices finds that there is no co-movement between any of the price series for the time period starting in 2002. We also concluded that for the price of any of our four commodities—rice, soybeans, corn, and wheat—a one-equation ECM is not the most adequate to capture their dynamics over time and co-movements with other variables. In the case of soybean, rice and corn we found one co-integrating relationship between the corresponding price and the exogenous variables. However, when attempting to model long-run relationships we didn’t find mean reversion in the system. For wheat we found a co-integrating relationship. In the long run, wheat prices are positively linked with oil, M2, and volume traded in futures contracts; and negatively related to ethanol, exchange rate, fertilizer prices, and biodiesel production. These latter negative relationships seem at odds with economic reasoning. Also the most parsimonious short term model we found is one that considers only the error correction term and the noncommercial long position ratio. Hence some indication was found that fundamentals and volume of trading determine the long-run price, but a proxy for speculation in the futures market alone determines short-run movements in the spot price, even though this is not a rich short-term specification. An additional limitation in the case of wheat is that we cannot really claim a single-equation ECM as ethanol production and volume traded in futures contracts cannot be treated as exogenous variables 6
World food commodities prices increased 130 percent from January 2002 to July 2008. Individual agricultural commodities show even more pronounced increases: corn, wheat, rice and soybeans rose by 190, 162, 318 and 246 percent, respectively. Since July, food commodities prices began to fall. While this decline comes as a relief, prices are likely to stay high in the foreseeable future. Rising foodprices are a cause of major concern because they bring significant and immediate setbacks for poverty reduction, social stability, inflation and a rules- based trading system. There are three main drivers of rising foodprices: long-term supply-side weaknesses, a change in demand due to the surge in the production of biofuels starting in 2004, and the combination of macroeconomic factors such as the depreciation of the dollar and lower interest rates in the United States with export-restricting policies on the part of developing countries since mid-2007. Higher world food commodities prices cause significant inflationary pressures for developing countries. One key policy dilemma is to what extent governments should allow the changes in world food commodities prices to be passed through to domestic prices. If the increase is a reflection of a global inflationary process, partially insulating domestic foodprices may be the most adequate response. Many developing countries have chosen this path. The use of policy interventions that put a wedge between domestic and international prices exacerbates the price pressures in world markets for the affected commodities. Without a credible multilateral solution to large food price fluctuations, however, it is not surprising that countries pursue what is perceived as best for them even if the rest of the world is worse off as a result. A rules-based trading system should include safeguards and mechanisms which would make the protection of domestic consumers and producers from large—and recurrent-- food
Referring to the ’all products’ results in panel (a), there is some evidence that most retailers had a tendency to increase prices prior to sales, although the magnitude and statistical significance appears stronger for Retailers D, E and F (soft discounters in the UK during the sample) rather than the others (mainstream or premium retailers), with one discounter (Retailer D) displaying marked increases in prices in the run-up to sales. While the observed price growth is similar for both national brands and private label products in Retailer D, the statistical significance of the private label estimates falls marginally below the 10% level, thus it is only in the pricing of national brands where the behaviour finds statistical backing.
The estimates satisfy the standard statistical diagnostics, except the normality test in one of the equations. 5 Further all the equations have a relatively much higher explanatory power as compared to those found for several countries in the literature. The coefficients of the three ECTs in the VECM measure the speed of adjustments to its long-run equilibrium after a temporary shock. All the relevant coefficients in the main diagonal indicated in bold are negative and, therefore, correctly signed. They indicate overshooting from the long-run equilibrium in the short-run, as negative signs imply reduction in the value of the variables to restore equilibrium. However, the coefficient of ECT in the exchange rate equation is not statistically significant. The estimated speed of adjustment for foodprices and manufactured prices to their long-run equilibrium is -0.289 and - 0.253, respectively i.e., overshooting is slightly higher for the foodprices than that of manufactured prices.
PROALCOOL is a National Alcohol Program in Brazil, which started in 1974 and was initiated through oil crisis, is successful till today. Nevertheless in mid-1980s, when oil prices went down Brazil had economic troubles. Program was developed for independency of foreign oil. Ethanol is very good alternative for gasoline, when oil prices began to rise. Brazilian land accessibility and perfect climate for sugarcane agriculture, give this country comparative advantage in ethanol manufacturing. Public sector subsidies and tax breaks were the main factors, which helped the program started. In result farmers planted more sugar cane, investors built distilleries to convert the crop to ethanol and automobile industry designed cars, which are capable to run on 100% alcohol. Government’s subsidies for distribution network allowed to get the fuel to gas stations and preserved alcohol prices low to attract future clients. In the 1990s, low oil prices and ethanol shortages, forced government to extract its subsidies and lift price control on ethanol. “Today, the price difference between gasoline mixed with ethanol and hydrated alcohol is defined by the Government (minus 30% for hydrated alcohol). The percentage of the mixture of ethanol with gasoline is set at 25%.” Coordination between different kinds of Ministries was required for successful contribution of the project. By the mid-1980s nearly all new cars, which were sold in Brazil, tanked up ethanol. Today 40 percent of the fuel that Brazilians refuel is ethanol. 79 After effective implementation of PROALCOOL program, which was mandatory, Brazilian government made this time incentive for biodiesel production and develop additional social certificates, which give producers tax incentives. These incentives develop into Brazilian Program of Technological Development for Biodiesel called PROBIODIESEL. With the 13 th of January 2008 was obligatory to add 2% of biodiesel to diesel fuel, nevertheless addition increase to 5% in 2012. These compel the National Association of the Automotive Vehicles Manufactures to induce warranties for diesel engines that can be refueling with 2% biodiesel. The forecasts for demand are 800 million liters per year. In August 2005, Brazilian government create ruling, that biodiesel will be bought by the National Agency of Oil, Natural Gas and Biofuels (ANP). 80
Schmidhuber (2006) provides a framework in which we can look at biofuels as a transmission effect from oil the oil market to agricultural food markets. He argues that the prices of crude oil and fertilizers define a break-even price for each of sugar cane, maize and palm oil at which production of ethanol or biodiesel yields zero profit. At lower prices, it will pay to divert production away from food and towards energetic uses. In the long run, demand for these commodities in a free trade world effectively becomes infinitely elastic at these break-even prices. (The infinite elasticity assumption follows from the small likely share of biofuels in total energy supplies). Subsidies and tariffs, such as the U.S. tariff on imported ethanol, complicate these relationships but the principles remain clear. The consequence is that the grains and oilseed markets become integrated into the energy market and shocks to energy prices are transmitted to food commodities. This is what we have seen in 2006-08. Furthermore, since refining biofuel capacity is relatively inexpensive, price transmission from the oil market to food markets can be rapid.