Impact of the EU Biofuels Directive on the EU food supply chain

This article analyses the impact of the EU Biofuels Directive (BFD) on the EU agri-food supply chain using a computable general equilibrium model of the world economy, LEITAP. LEITAP is an extended version of the Global Trade Analysis Project (GTAP) model including improved land market modeling, substitution possibilities between capital and energy, different energy sources including biofuels, feed byproducts of biofuel production and the substitution between different feed components and feed byproducts. The simulation results show that the implementation of the EU BFD has a pronounced impact on the markets of cereals, oilseeds and sugar and shows only with a limited impact on production and consumption of other agri-food commodities not directly affected by biofuel production. As a direct effect of the BFD the harvested area and production of biofuel crops (grains, oilseeds) is expected to increase by 17% and 25%, respectively, and sugar production by 12%. EU imports of these commodities are expected to more than double. The increasing demand for biofuel crops and sugar will raise domestic prices of these commodities by 25% and 19%, respectively, but overall agri-food price inflation will be limited to 3% in the EU and to less than 1% at world market level.