A Comparative Analysis Between Biofuels and the Food & Agricultural Industries

As of 2020, 35% of corn was grown for animal feed, 31% for biofuel, and less than 2% for human consumption. The Inflation Reduction Act (IRA), specifically Section 45Z, offers tax credits to farmers cultivating low-carbon intensity corn for clean transportation fuels, potentially reshaping corn allocation trends. For this Master’s Project, we collaborated with Rabobank to explore the implications of this policy shift, with a particular focus on corn allocation dynamics across human consumption, feedstock, and biofuel sectors.

The potential for competition arises as farmers may prioritize selling to the fuel industry to capitalize on incentives, which could reshape traditional corn allocation trends. However, uncertainties about the adequacy of incentives from food companies to counteract this shift remain. This project aims to provide Rabobank with insights into how the IRA will influence farmers' crop allocation decisions and to understand the competitive landscape between the food and renewable fuel industries.

The research finds that ethanol producers are incentivizing farmers to cultivate low-carbon intensity crops through sustainability initiatives. Nonetheless, uncertainties about the level of financial support and premium payments to farmers create barriers to adopting sustainable practices. In contrast, food companies seem to have a limited approach to incentivizing low carbon crop cultivation, mainly focusing on educational initiatives rather than offering substantial financial incentives. This highlights the comparative advantage of biofuel companies in encouraging agricultural practices. Despite potential competition concerns, the food industry's impact is expected to be minimal as the U.S. has a sufficient corn supply to meet domestic needs or import as necessary.

Additionally, the renewable fuels landscape is undergoing a significant transformation, with new alternatives like renewable diesel poised to reshape the industry. If biodiesel becomes a dominant renewable fuel, it may reduce competition between the food and ethanol industries regarding corn sourcing, thereby offering a different avenue for renewable fuel production. To gain a deeper understanding of these dynamics, we conducted interviews with stakeholders from various sectors, including farmers and professionals from the food and agriculture industry. These interviews offered invaluable insights into considerations such as costs, transportation, and crop rotation. We also examined the intricacies of incentives for farmers, how they are informed about new opportunities, and the impact of trends. Discussions included topics such as regenerative agriculture, challenges presented by the IRA, and how the food industry could effectively compete with renewable fuels for sourcing low-carbon crops, informing future strategies and policies.

In conclusion, this research project highlights the evolving landscape of agricultural production and renewable fuels, emphasizing the need for tailored strategies and collaborative efforts to navigate the transition towards a more sustainable future.