Energy Policies and Food Prices

Abstract

Biomass energy has been regarded as an effective instrument in combatting a high oil price. However, the increased production of biomass energy has raised the demand for agricultural products and led to a global grain deficiency and rising grain prices. This paper discusses the influence of energy policies on the agricultural product price using a macro model that contains the energy demand for agricultural products. The results show that: 1) A rise in the subsidy for agricultural products used for biomass energy will have an ambiguous effect on the agricultural product price and exchange rate in the long run. 2) The rise in the subsidy on agricultural products used for biomass energy will result in a misadjustment of the exchange rate in the short run. 3) When the elasticity of substitution between agricultural products and bonds is extremely large, the rise in the energy tax on fossil fuels will reduce the agricultural product price in the long run. 4) Given the extremely large elasticity of substitution between agricultural products and bonds, increasing the share of biomass energy in total energy will increase the agricultural product price in the short run and reduce the price in the long run.