Assessing the impact of corn-ethanol production on global corn price based on a VAR model

The fuel ethanol industry has been in rapid development in recent years with the US as a leading force, which consumes large amount of corn. In order to assess the impact of corn-ethanol production on global corn price, a VAR model is used in this paper. By impulse responses analysis and variance decomposition analysis the direct impact of corn-ethanol production on global corn price and its relative importance compared with other external factors are proved. The results show that increasing amount of corn used for US ethanol production leads to rapid increases of global corn price when the corn production is steady. The proportion of corn used for ethanol production among total corn production in the US plays an important role in affecting global corn price among all external factors, and the significance of its impact will enhance in the long run. The fuel ethanol industry should turn to non-grain materials in the future to keep the global corn price steady and guarantee global food security, and it's necessary for all fuel ethanol producers to take action.