IMPACTS OF BIOFUELS PRODUCTION ON FOOD INDUSTRY IN THE PRAIRIE REGION OF CANADA

Abstract

On the Canadian Prairies, canola is a main source for biodiesel production and wheat is the primary feedstock for bioethanol production. To raise biofuel production requires a movement of resources and land away from food and grain crops, which would cause food to become scarcer and increase its price. This paper determines the impact of more biofuels production on the food industry. It considers the simultaneous estimation of share equations from both revenue function and distance function. Econometric results exploit the non-stationary nature of the data and the correlations among shares between primal and dual models are exploited by cointegration techniques. Johansen’s maximum likelihood estimator is applied to 1971-2007 data from Manitoba, Alberta and Saskatchewan. Morishima elasticity estimates indicate high long run substitutions among crops (wheat, feed grains and canola). A rise in the production of biofuel crops could cause food prices to increase, both for meat and bread.