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Identifying Supply and Demand Elasticities of Agricultural

Commodities: Implications for the US Ethanol Mandate


Michael J. Roberts

and Wolfram Schlenker

Abstract
We present a new framework to identify supply elasticities of storable commodities where
past shocks are used as exogenous price shifters. In the agricultural context, past yield shocks
change inventory levels and futures prices of agricultural commodities. We use our estimated
elasticities to evaluate the impact of the 2009 Renewable Fuel Standard on commodity prices,
quantities, and food consumers surplus for the four basic staples: corn, rice, soybeans, and
wheat. Prices increase 20 percent if one third of commodities used to produce ethanol are
recycled as feedstock, with a positively skewed 95% condence interval that ranges from 14
to 35%.
JEL: Q11, G13, Q42
Keywords: Storable commodities, supply response, food prices, biofuel mandates.
We thank Jim Hamilton, Randall Walsh, three anonymous referees and seminar participants at Berkeley,
Cornell, Iowa State University, NBER Agricultural Economics Conference, Stanford, University of British
Columbia, University of Calgary, and the University of Maryland for very useful comments. All remaining
errors are ours. Financial support from Department of Energy Grant DE-FG02-08ER64640 and National
Science Foundation Grant SES-0962559 is thankfully acknowledged. The authors have no relevant or nan-
cial interests related to this project to disclose.

Department of Agricultural and Resource Economics, North Carolina State University, Box 8109, Raleigh,
NC. Email: michael roberts@ncsu.edu.

School of International and Public Aairs, Columbia University, 420 West 118th Street, Room. 1308, MC
3323, New York, NY 10027. Email: wolfram.schlenker@columbia.edu.
The rapid ascent of commodity prices between late 2005 and 2008 led to renewed debate
about what drives the demand and supply for basic food commodities. Corn prices nearly
quadrupled from about $2 per bushel to almost $8 per bushel, and prices for rice, soybeans,
and wheat rose by similar amounts. These prices briey dropped in 2009-2010 due to the
recession, but corn again broke $8 in 2011. High prices for these staple grains caused hunger,
malnutrition, and riots in a number of developing nations, as was vividly reported in the
popular press.
1
The price spike was attributed to a number of factors, including the pro-
longed drought in Australia, accelerating demand growth due to the broad scale economic
development in Asia, and a shift in demand stemming from the United States ethanol policy.
The combination of ethanol subsidies, restrictions on ethanol imports, and high oil prices
caused a formerly nascent ethanol industry to quickly grow into one that consumes approxi-
mately one third of the United States corn production and about ve percent of the worlds
combined caloric production of corn, soybeans, wheat and rice. Evaluating how much the
biofuel mandate contributed to higher prices requires estimates of the underlying supply and
demand elasticities.
A closely connected issue is land use change. Commodity production, pasture, and forests
sequester substantially dierent amounts of carbon. This has sparked a debate about the
potential benets of using biofuels to reduce CO
2
emissions. Diversion of food into fuel
raises the price of food and induces farmers to produce more. Crucial points of disagreement
concern the size and nature of this supply response, as the potential size of the CO
2
eect
depends on how much additional production comes from the extensive margin. Land use
change (mainly deforestation) is thought to account for about 20 percent of worldwide CO
2
emissions (IPCC 2007).
2
Another discussion that requires estimates of agricultural demand and supply elasticities
involves leakage from carbon oset programs that pay farmers to either forestall defor-
estation or reforest land that would otherwise be used in crop production. Carbon oset
programs shift the supply of cropland inward, causing commodity prices to rise, and po-
tentially an osetting increase in the quantity of cropland supplied elsewhere. The global
1
Two examples are Fuel Choices, Food Crises and Finger Pointing on April 15, 2008 and Across Globe,
Empty Bellies Bring Rising Anger on April 18, 2008, both published in the New York Times.
2
A similar concept considers market feedback in fuel consumption instead of agriculture. A standard
that limits the carbon intensity of fuels via a subsidy for low-carbon fuels increases fuel quantity demanded.
Thus, CO
2
emissions will decline by less than the reduction in carbon intensity. In an extreme case, such
a standard could theoretically increase total emissions. However, Stephen P. Holland, Jonathan E. Hughes
& Christopher R. Knittel (2009) show that this counterintuitive result does not hold under reasonable
parameter assumptions.
1
net oset can therefore be much less than the oset purchased in any particular location.
The amount of leakage depends on the size of the supply elasticity relative to the demand
elasticity.
With these applications in mind, this paper develops a new framework to empirically
identify both supply and demand elasticities of storable commodities where prices are linked
between periods via storage. We apply this framework to the worlds four most important
staple food commodities: corn, wheat, rice, and soybeans. These commodities comprise
about 75 percent of the caloric content of food production worldwide.
3
While many other
commodities matter for food consumption, and the particular mix of foods varies across
locations, we limit ourselves to these four crops. The prices and quantities of other staple
food items are inextricably linked to these four commodities. As we will show below, the
prices of the four commodities tend to uctuate closely together. In our baseline specication
we simplify matters further by aggregating these four key crops on either a caloric or value-
weighted basis.
Agricultural commodity markets, with their many price-taking producers and buyers
and well-developed spot and futures markets, are often cited as the archetype of perfect
competition. The key empirical challenge is to separate supply and demand in the markets
formation of prices and quantities. Correct identication requires instruments that shift
prices in ways that are plausibly unrelated to unobservable shifts in each curve. Since
Philip G. Wrights (1928) introduction of instrumental-variable estimation, weather has been
considered a natural instrument for agricultural supply shifts, which can be used to facilitate
unbiased demand estimation. The idea is that weather shifts supply in a manner that is
unrelated to unobserved demand shifts. Given this idea was established long ago we nd it
surprising that the literature in agricultural economics that uses weather-based instruments
to identify demand is extremely thin.
4
Here we show how yield shocks that are due to random weather shocks can also be
used to identify supply. The idea follows naturally from the theory of competitive storage:
past shocks exogenously shift inventories, which aect futures prices and the demand for
storage, which in turn cause production responses in the future. Past shocks can serve
as instruments for futures prices. The same methodology could in principle be applied to
any storable commodity, where prices are linked between periods through storage, and past
3
Kenneth G. Cassman (1999) attributes two-thirds of world calories to corn, wheat, and rice. Adding
soybean calories brings the share to 75 percent.
4
For example, Joshua D. Angrist, Kathryn Graddy & Guido W. Imbens (2000) use weather to instrument
the supply of sh to the Fulton Fish market in New York.
2
shocks shift the demand to hold inventory.
Our approach to supply estimation diers from a large existing literature that stems from
the seminal work of Marc Nerlove (1958). In this literature, supply is estimated by regress-
ing quantities against uninstrumented futures prices, lagged prices, or prices predicted from
an autoregressive model. Nerloves approach purges endogeneity stemming from current
unanticipated supply shocks that are, for example, due to current weather shocks. How-
ever, this does not account for endogeneity stemming from anticipated supply shifts that
are unobserved to the econometrician, since futures prices reect the intersection of antic-
ipated supply and anticipated demand. Endogeneity remains a serious concern since these
unobserved supply shifts are part of the error in a supply equation with futures prices on
the right-hand-side of the regression. This is perhaps one reason why this substantial liter-
ature on agricultural supply response nds widely varying supply elasticities that often lack
statistical signicance (Hossein Askari & John Thomas Cummings 1977).
A recent example from the United States illustrates the endogeneity of futures prices
in the supply equation. In the spring of 2004 soybean rust (a fungus) was rst detected
in the United States. Although soybean rust is manageable, fungicides used to control it
are expensive. In the subsequent growing season, fear of the pest caused some farmers to
switch from planting soybeans to planting corn. These supply shifts were anticipated in
advance, causing futures prices for soybeans to rise and futures prices for corn to fall, clearly
movements along the demand curves for these key crops. In other words, the planted area
did not decrease because prices went up, but prices went up because there was an unobserved
shift in supply (stemming from fear of soybeans rust) that lowered area planted and expected
harvest. In subsequent years the perceived threat of this new pest abated, causing additional
supply uctuations as relative prices returned to normal. A naive econometrician, regressing
quantity supplied of either corn or soybeans on futures prices, would estimate a supply
elasticity biased towards zero due to the soybean rust phenomenon. While this is just one
example, it should be clear that, when using the standard approach to supply estimation,
any number of anticipated supply shifts that are either unobservable or immeasurable to the
econometrician would cause downward bias in the estimated supply response.
Our baseline approach to estimate supply and demand exploits yield shocks devia-
tions from country and crop-specic yield trends that appear to stem mainly from random
weather shocks. A potential shortcoming of this approach is that yields themselves may be
endogenous to price. We explore this potential issue in detail and argue that any short-run
causal links going from price to yield are likely minimal. When we regress futures prices on
3
past weather shocks, which are more defensibly exogenous than yield shocks, we obtain sim-
ilar point estimates that are less precisely estimated. The obvious tradeos between using
yield shocks and weather variables as instruments are between statistical power, endogeneity
bias and weak-instruments bias. Despite these tradeos, a wide variety of estimates using
dierent specications and instruments show remarkable consistency, and most estimates
have strong statistical signicance.
We use the demand and supply model of world commodity calories to examine the eect
of the current United States biofuel mandate on food prices. This analysis provides some
perspective on rapid price increase between 2005 and 2008 and how much of it might have
been attributable to ethanol policy. Our estimates indicate that supply is more elastic than
demand, with almost all of the supply response coming from the extensive margin, i.e.,
an expansion of land area. Both supply and demand elasticities are signicantly larger,
both economically and statistically, than uninstrumented estimates derived using traditional
techniques. The estimates suggest that the US ethanol mandate increased food prices about
30 percent and increased world production area by 2 percent. The baseline estimate for the
price increase does not incorporate any recycling of the corn used to produce biofuels as
feedstock, which will reduce the predicted price increase proportionally. For example, if one
third of the calories used to produce biofuel remain in the byproduct that is fed to animals,
and this feedstock is a perfect substitute for other grains, the price increase would be 20
percent. On the other hand, if the feedstock is not a perfect substitute, the eect will lie
in between. While these predicted eects are substantial, they suggest that other factors
likely played a larger role in the 2005-2008 price boom.
5
The 95% condence interval of the
predicted price increase is positively skewed and stretches from 14% to 35% if one third of
commodities used to produce ethanol are recycled as feedstock, suggesting that signicantly
larger price increases are possible even if the byproducts of ethanol generation are recycled.
At the same time, a 30 percent price increase implies an annual loss of 180 billion in
consumer surplus. While most of this is oset with an increase in producer surplus, the US
ethanol policy results in transfers from net food importers to next food exporters. Since
most developing countries are net food importers, they are especially aected. Moreover,
an increase in world food prices for a food importer is equivalent to a reduction in income,
5
Catherine Hausman, Maximilian Auhammer & Peter Berck (2012) use a vector auto-regression price
process to estimate how corn and soybean prices respond to shocks in the United States. They nd that
US ethanol production was responsible for roughly 27% of the recent corn price increase. Similar to Nerlove
(1958), lagged variables are allowed to inuence futures prices. While we follow a similar time structure of
using lagged variables, we only use past yield shocks, not area changes, as an instrument.
4
which has been shown to increase civil conict (Edward Miguel, Shanker Satyanath & Ernest
Sergenti 2004, Marshall B. Burke, Edward Miguel, Shanker Satyanath, John A. Dykema
& David B. Lobell 2009). The US biofuel policy therefore has signicant distributional
consequences. This result is in line with earlier research about other policies that purportedly
reduce CO
2
emissions. Antonio M. Bento, Lawrence H. Goulder, Mark R. Jacobsen &
Roger H. von Haefen (2009) examine the markets for new and used cars and nd that
the distributional consequences of a gasoline tax crucially depend on how the revenues are
recycled. Similarly, Shanjun Li, Christopher Timmins & Roger H. von Haefen (2009) nd
that higher gasoline taxes not only change the fuel economy of new cars, but also lead to
increased scrappage of old inecient cars, which are primarily owned by the less auent.
1 A Model of Supply and Demand
We simplify our characterization of world food commodity market by transforming quanti-
ties of corn, wheat, rice, and soybeans into caloric equivalents and then aggregating them
(Michael J. Roberts & Wolfram Schlenker 2009). In sensitivity checks we also present re-
sults for a disaggregate analysis as well as an aggregate analysis on the basis of average
price. Aggregating crops facilitates a simple yet broad-scale analysis of the supply and de-
mand of staple food commodities on a worldwide scale. A practical reason for aggregation
is that prices for all four commodities tend to vary synchronously, which seriously impedes
identication of multiple cross-price elasticities and separating cross-price elasticities from
own-price elasticities. The strong correlation of prices over time also suggests that substi-
tution possibilities are large enough that the aggregate outcomes likely characterize all four
markets reasonably well. For example, the recent Russian wildres that impacted global
wheat production inuenced corn prices almost as much as wheat prices.
1.1 Theoretical Motivation
Having reduced the staple food commodity market to a single caloric measure, we need a
model that characterizes supply, demand and inventories and how random shocks facilitate
identication of the supply and demand elasticities. The theory of competitive storage sits
at the heart of this approach. Storage is a characteristic feature of all four commodities we
consider. It allows for substitution of consumption over time by transferring commodities
from periods of relative plenty to periods of relative scarcity. Consumption is smoother than
production and prices are less variable and more autocorrelated than they would be without
5
storage opportunities. Equilibrium in each period does not require a price where supply in
the current period equals consumption demand in the current period, but a price where the
amount consumed c
t
equals food supply at the beginning of the period z
t
minus the amount
stored for the next period (denoted x
t
).
c
t
= z
t
x
t
An extensive literature on the rational competitive storage model characterizes demand
for inventories and the resulting price path of commodities. Our focus diers from this
literature, but we do exploit the above identity and other essential characteristics of storage
models.
Jos`e A. Scheinkman & Jack Schechtman (1983) and Eugenio S. A. Bobenrieth H., Juan
R. A. Bobenrieth H. & Brian D. Wright (2002) set up a model in which prot-maximizing
agricultural producers make two decisions. The rst is how much to store and carry over
to the next period, x
t
. Storage has convex cost (x
t
). The amount not stored z
t
x
t
is
consumed and gives consumers utility u(z
t
x
t
). The second decision is how much eort

t
to put into new production, which is subject to a multiplicative i.i.d. random weather
shock
t+1
that is unknown at the time of planting. One possible interpretation is that
t
species the number of acres a farmer plants and
t+1
is the random yield, which is driven by
exogenous weather shocks. Production in the coming harvest season is
t

t+1
. Production
cost g(
t
) are assumed to be convex, as land of heterogeneous quality becomes progressively
more expensive to farm.
The Bellman equation for the social maximization problem is
v(z
t
) = max
xtt
{u(z
t
x
t
) (x
t
) g(
t
) + E[v(z
t+1
)]} subject to
z
t+1
= x
t
+
t

t+1
x
t
0, z
t
x
t
0,
t
0
Competitive price-taking producers and storers achieve the socially optimal outcome by
optimally balancing the marginal cost of eort against futures prices and the marginal cost
of storing agricultural goods against the change in futures prices. In the social planners
problem, price is reected by the marginal utility of consumption. Increasing storage is
protable in years when availability z
t
is suciently large, which causes the current price to
be low. By shifting some of the current availability into the next period, current price rises
and price in the next period falls. This process continues up to the point when the discounted
6
futures price net of storage cost equals current price. For the same reason, prices rise if
availability z
t
decreases. If the weather shock is suciently negative, inventories theoretically
may be drawn to zero, even though this is rarely observed in practice.
6
Scheinkman &
Schechtman (1983) show that in a competitive equilibrium:
(i) consumption c
t
= z
t
x
t
is strictly increasing in z
t
(ii) storage x
t
is weakly increasing in z
t
(iii) eort
t
is weakly decreasing in z
t
For our purposes, the key result from this model is that it implies exogenous shocks are
optimally divided between current consumption and inventory adjustments. We can infer
this because random shocks randomly shift z
t
. Thus, bad weather shocks exogenously reduce
z
t
and by point (i) reduce consumption and increase price. This captures movement along
the demand curve. The same negative weather shocks also draw down inventories by point
(ii), thereby increasing the price in subsequent period. When storage levels are low and
the futures price in the next period is high, farmers increase eort
t
by point (iii) through
higher acreage or yields. This captures movement along the supply curve.
1.2 Empirical Model
The empirical model is
Supply: q
st
=
s
+
s
p
st
+
s

t
+ f
s2
(t) + u
t
(1)
p
st
=
s
+
s0

t
+
s1

t1
+ f
s1
(t) +
t
(2)
Demand: q
dt
=
d
+
d
p
dt
+ f
d2
(t) + v
t
(3)
p
dt
=
d
+
d0

t
+ f
d1
(t) +
t
(4)
Log quantity supplied is denoted by q
st
= log(
t1

t
), while log quantity demanded is
q
dt
= log(
t1

t
+x
t1
x
t
), which is new production minus the change in inventories. The
6
In the absence of convenience yield, a stockout theoretically occurs when prices are high enough that
the subsequent futures price change becomes negative. If, however,
t+1
is allowed to have a mass point
at zero, i.e., a non-zero probability that the entire harvest is wiped out, and lim
c0
u

(c) = , then the


long-run distribution has a nite price, inventories will be positive with probability one, and the mean of
the price distribution is innite (Bobenrieth H., Bobenrieth H. & Wright 2002). While low inventory levels
(and high prices) will almost surely result in subsequent price declines, the futures price is still increasing.
The rationale is that if another bad shock occurs, the already strained market would result in a very large
price jump. The resulting payo is so large that it always justies holding positive inventories.
7
supply equation uses the log of future price p
st
= log (p
t
|
t1
)
7
, while the demand equation
uses log futures prices during the month of delivery p
dt
= log(p
t
). Intercepts
s
,
d
,
s
, and

d
are allowed to evolve over time according to time a trend f
i
(t) in all of the four above
equations (i {s1, s2, d1, d2}).
Prices are the key endogenous variables on the right-hand side of both supply and de-
mand. The crux of the identication problem is that shifts in supply and demand that
are unobserved to the econometrician (u
t
and v
t
) inuence prices via the equilibrium iden-
tity. Without correcting for the endogeneity of prices, the supply elasticity would be biased
negatively, since unobserved positive supply shifts (u
t
) would tend to reduce price all else
the same, creating a negative correlation between u
t
and price. A naive demand elasticity
(without correcting for the endogeneity of prices) would tend to be biased positively, since
unobserved positive demand shifts (v
t
) would tend to increase price all else the same, creat-
ing a positive correlation between v
t
and price. If unobserved supply and demand shifters
u
t
and v
t
are correlated, biases could go in either direction.
8
Our baseline model uses yield deviations
cit
for crops c in country i in year t. We t crop-
and-country specic time trends g
ci
(t) in regressions of log yields y
cit
, i.e., y
cit
= g
ci
(t) +
cit
.
The annual shock
t
is a weighted average of all shocks. The weights
cit
depend on predicted
yields y
cit
= e
g
ci
(t)+

2
2
(where
2
is the estimated variance of the error terms), growing area
a
cit
, and the caloric content of one production unit of crop c,
c
.

t
=

cit
y
cit
a
cit

i
y
cit
a
cit

c
=

cit

cit

cit
=
y
cit
a
cit

i
y
cit
a
cit

c
In our baseline model we use the actual growing area a
cit
. While the growing area is
endogenous, it only enters as a weighting factor of the exogenous percentage shocks

cit
that
are primarily caused by weather. If production increases in a country because of an increase
in the area but yields do not deviate from the trend, it will not be appear in our shock
t
.
Weighting by the actual area gives the accurate global exposure to exogenous shocks, which
is still a valid exogenous instrument (see appendix Section A1.1 for a formal derivation). If
7
We use futures prices in December of period t 1 with a delivery in December of year t for corn and
wheat and a November delivery for soybeans and rice. We present sensitivity checks in the appendix where
we vary the months but the results are generally robust.
8
Colin A. Carter, Gordon Rausser & Aaron Smith (2011) argue that there were two big commodity price
spikes1974 and 2008that resulted from several correlated macro-economic factors. It is therefore crucial
to use exogenous instruments.
8
one is worried about the endogeneity of the weights, we present a robustness check where we
use predicted area along the same country-and-crop-specic time trend we use in the yield
regression and get very similar results.
Another, and potentially more worrisome concern is that yields might themselves be
endogenous, which would make yield deviations an invalid instrument. We therefore present
an analysis where we replace yield shocks

cit
with observed weather outcomes: a quadratic
in average temperature and total precipitation. While these instruments are more defensibly
exogenous, they are less ecient: the point estimates for the supply elasticity remain robust,
but the rst stage results are not as signicant and standard errors are larger.
The price in the demand equation is identied through the exogenous shock
t
. The
exclusion restriction requires that these shocks do not directly aect demand. While it is in
principle possible that yield shocks or weather outcomes could shift tastes, hunger, or general
caloric need, it seems unlikely that these could matter in a global context. Well-established
international markets trade a signicant share of production within and between regions
and nations. Thus, weather aecting crop production tends to be far removed from demand
centers. For example, most of the feed grains used for hog and poultry production in North
Carolina come from the Midwest where weather uctuations are quite unrelated.
A novelty of our approach is that we use past yield (or weather) shocks
t1
to identify
the supply elasticity
s
in addition to the demand elasticity. As described in detail above,
this is possible because past weather-induced supply shocks aect inventories and inventories
aect futures price in subsequent periods. The key assumption for consistent identication
of the supply elasticity is that past weather-induced supply shocks have zero covariance
with unobserved supply shifters in the current period. Unobserved supply shifters might
stem from recurrent or anticipated pest problems, like the example of soybean rust in the
introduction, broad macroeconomic phenomena, governmental policies, or perhaps other
factors. One concern may be that agronomic or weather factors are correlated over time.
We address this potential concern in two ways. First, we show yields and weather shocks
display little autocorrelation.
9
Second, we estimate MA models in a sensitivity check and
only use innovations in a period and the results remain robust. Third, we include current
weather shocks in the supply equation. While current shocks must be excluded from the
demand equation, including them in the supply equation increases precision by reducing the
error variance while accounting for current supply shifts that may have been associated with
9
Rice is an exception; however the other three commodities and aggregate yield shocks show little auto-
correlation.
9
past shocks. Thus, conditional on the current weather or yield shock, its not clear how or
why past weather or yield shocks might be related to unobserved supply shifters.
2 Data
World production and storage data are publicly available from the Food and Agriculture
Organization (FAO) of the United Nations (http://faostat.fao.org/) for the years 1961-2010.
The data include production, area harvested, yields (ratio of total production divided by
area harvested), and stock variation (change in inventories) for each of the four key crops.
The last variable is only available until 2007. In our model estimates below, we stop all series
in 2007 because quantity demanded (which depends on changes in inventory) is not available
after 2007. In a sensitivity check, we also use data from the Foreign Agricultural Service
(FAS) by the United States Department of Agriculture (http://http://www.fas.usda.gov/)
that has data for 1961-2010 for all variables, including stocks.
10
Variables are converted into
edible calories using conversion factors by Lucille Williamson & Paul Williamson (1942),
which specify edible calories per output quantity of various crops. Consumption (quantity
demanded) is calculated as production minus the net change in inventories.
Data on quantities are displayed in Figure 1. The top panel displays the number of people
that could be fed on a 2000 calories-per-day basis, and how much each of the four commodities
contributed to total caloric production. Maize has the biggest share while soybeans has the
smallest share. Wheat and rice are in the middle and have roughly equal shares. One
noteworthy fact is that overall year-to-year uctuations (top line) are predominantly due to
uctuations in corn. More than half of all corn, sometimes also called maize, was traditionally
produced in the United States and the bulk of that production is geographically concentrated
in one region, the Midwestern corn belt.
11
Other crops are less geographically concentrated
and local weather shocks average close to zero when summed over the whole world. Maize
may contribute a larger share of world caloric variability simply because its production is
more geographically concentrated and therefore more likely to experience correlated weather
outcomes.
The bottom panel of Figure 1 shows production and consumption quantities. Two fea-
tures are noteworthy: First, production and consumption have been steadily trending up-
ward, almost linearly. Both appear trend stationary. Second, uctuations around trend
10
FAS reports production for marketing years. The exact procedure how marketing years are linked to
calendar years is given in Section A2.1 of the Appendix.
11
Today, the US still accounts for roughly 40 percent of world maize production.
10
production are small in proportion to the trend. Consumption uctuations are even smaller
due to smoothing from storage accumulation and depletion. The FAO series on stock vari-
ation, necessary for derivation of consumption, ends in 2007 and hence so does our demand
estimate.
Yield shocks in our baseline model are calculated by taking jackknifed residuals from
tting separate yield trends for each crop in each country. Trends and shocks were estimated
separately for each country with an average of 0.5 percent or more of world production for a
given crop.
12
Remaining rest-of-world yields were pooled and treated as a single country for
each crop. Yield shocks in the baseline model were derived from a trend that is approximated
by a restricted cubic spline with 3 knots,
13
i.e., two variables.
14
Our premise is that these deviations from yield trends are exogenous as they largely due
to random weather. One potential concern is that yields themselves might be a function of
prices. For example, higher prices could induce farmers to choose higher sowing densities,
thereby increasing average yields. On the other hand, higher prices might induce farmers to
expand their production to marginal, less productive, land, thereby lowering average yields.
It is a priori unclear which way the bias would go. We believe that endogenous yield responses
are not important in our paper for two stylized facts. First, if yields were responsive to price
levels, we would observe that yield shocks are correlated between various countries in a
given year, as all countries face the same world price.
15
Idiosyncratic yield shocks for various
countries get averaged out in aggregate except when regions that account for a signicant
share of production get hit by the same shock. Accordingly, aggregate shocks vary much less
than country-and-crop-specic shocks. Our baseline log deviations vary between -0.057 and
0.044 in the FAO data.
16
A value of -0.05 implies that global production was roughly 5%
below predicted yields.
Second, aggregate yield shocks
t
have almost no autocorrelation, while prices have a
12
The average share of world production between 1961-2010 in both the FAO and FAS data are listed
in Appendix Tables A1-A2. Countries that on average produced at least 0.5% of a crop are shown in the
bottom map in Appendix Figures A1-A4.
13
The tted trends and residuals are displayed in Appendix Figures A5-A7.
14
Restricted cubic splines are more exible than quadratic time trends. To access the sensitivity of the
results to the chosen trend specication, Table A15 in the appendix ts yield trends ranging from a linear
time trend to splines with 5 knots with little eect on the estimated results. Wile we use generated variables
as instruments, Jerey M. Wooldridge (2002, p.117) points out that this will still give consistent estimates
of the standard errors in the second stage.
15
Figure A8 in the appendix shows scatter plots of yield deviations for the two biggest exporters for each
of our four commodities. These plots show no systematic correlation, one even has a negative correlation
coecient.
16
Shocks vary between -0.070 and 0.051 in the FAS data, which averages over fewer countries.
11
high degree of autocorrelation.
17
If yields endogenously respond to prices, than aggregate
yield shocks would show autocorrelation as well. While some endogenous yield response is
likely present, these stylized facts suggest it is small relative to variation induced by weather.
To further address the concern of endogenous yield responses, we conduct a sensitivity
check where we replace yield shocks with observed weather variables. Since global production
and consumption data are annual aggregates, we construct annual weather aggregates for a
quadratic in average temperature as well as total precipitation. Weather data from Center
for Climatic Research at the University of Delaware (version 2.01) gives monthly temperature
and precipitation readings on a 0.5 degree grid for the entire world for the years 1901-2008.
Weather outcomes in a country are the area-weighted average of all grids that fall in a
country. See appendix A2.2 for a more detailed description. The weather for corn in the US
is therefore dierent for rice in the US in a given year as they are grown in dierent areas
and dierent time periods. The global average is simply the area weighted average of all
crops and countries. Since the FAS data provides production quantities for all countries with
signicant production, we take the weighted average of each weather variable and country
for all countries in the FAS data, i.e., we omit small countries in the FAO data as they tend
to add noise to the measure.
We obtain two price series. Our baseline model uses futures prices from the Chicago
Board of Trade with a delivery month of December for maize and wheat, and November for
soybeans and rice.
18
We construct the demand price p
dt
as the log of the average futures
price during the month when delivery occurred, e.g., in December of the delivery year for
corn. Futures price in the supply equation p
st
= p
t
|
t1
is the log of the average futures price
in December one year prior to delivery.
19
All prices are deated by the Consumer Price
Index.
20
Prices for each commodity are converted to their caloric equivalent, with the world
calorie price taken as world production-weighted averages of the four commodities.
21
17
The Durbin-Watson statistic when we regress our baseline shock
t
on various time trends in Tables 1
(FAO data) and Table A8 (FAS data) is 1.68-1.87, suggesting there is no autocorrelation. On the other
hand, the statistic is 0.43-0.99 if we use prices, which is below the critical value at the 1% level.
18
We use futures price for No. 2 yellow for corn, No. 1 yellow for soybeans, No. 2 soft red for
wheat, and Rough Rice #2 for rice. Rice futures did not trade before 1986, so we prorate the price of rice
by the change in rice spot data. For example, if the spot data in 1980 was 70% of 1986, we set the futures
price data in 1980 as 70% of the futures price in 1986. Since the price data is interpolated for rice, we do
not use it when we derive the average price of all crops.
19
In some cases the time series of a contract does not extend back to the previous December so we take
the average price in months closest to previous December.
20
We deate prices before we take logs. We use the CPI for all urban consumers:
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
21
For most commodities one cannot reject a unit root using standard tests (Dabin Wang & William G.
12
A second price series with longer temporal coverage are those received by US farmers,
publicly available from the US Department of Agriculture. Figure 2 displays real price
(annual cost of a 2000 calories per day diet in 2010 dollars). There has been a general
downward trend of food prices. Prices per calorie move together for all four commodities,
most notably maize, wheat and soybeans.
22
This is not surprising, given that those three are
close substitutes in production and consumption. For example, maize and soybeans (and to
some degree wheat) are used as feed for livestock. If one were cheaper per calorie than the
others, prot-maximizing farmers should switch to the cheaper input. Price uctuations are
proportionately much larger than quantity uctuations in Figure 1. This fact suggests that
both demand and supply are inelastic.
3 US Ethanol Subsidies and Mandates
Ethanol has a long history as a car fuel. Fords Model-T was designed to run both on
ethanol and petroleum, or arbitrary mixes of the two. Declining petroleum prices led to a
slow phase out of ethanol as a fuel. Recent concerns about anthropogenic CO
2
emissions
have renewed interest in ethanol as a fuel substitute, even though the net eect is highly
debated (Timothy Searchinger, Ralph Heimlich, R. A. Houghton, Fengxia Dong, Amani
Elobeid, Jacinto Fabiosa, Simla Tokgoz, Dermot Hayes & Tun-Hsiang Yu 2008). Ethanol is
currently being mixed with traditional petroleum in ratios up to 10 percent. Most cars can
run on such fuel mixes. Modern ex-fuel cars are designed to run on fuel that is up to 85
percent ethanol.
The US ethanol mandate may have a measurable inuence on world food prices since it
diverts a sizable amount of global production into the fuel market. Since 1960, the US share
of combined world caloric production for the four key commodities was about 23 percent
(bottom left panel of Appendix Figure A11), and the majority came from maize. Any
Tomek 2007), but nor can one reject the null hypothesis of a stationary series with signicant autocorrelation,
as implied by storage theory. The same is true for our data: Augmented Dickey-Fuller tests do not reject
a unit root for the price series. On the other hand, the rst stage of Cochrane-Orcutt regressions of prices
on a time trend predict autocorrelation coecients between 0.50 and 0.81 dependent on whether we use
FAO or FAS data and how many spline knots we include to model the time trend. Given that production
is clearly trend stationary (a unit root can be rejected), and that production and prices are linked between
periods through storage, the evidence points towards a stationary time series with high autocorrelation.
Nevertheless, we present a sensitivity check where we control for lagged prices in both the rst and second
stage, but the results remain robust.
22
In a sensitivity check we do not use the caloric conversion ratios of Williamson & Williamson (1942),
but instead derive them implicitly by forcing the average price of each commodity in 1961-2010 to equal the
one for maize. The rescaled price series is shown in Appendix Figure A9.
13
mandate that diverts a sizable share of US production into fuel will also be sizable from a
global perspective due to the US market share in calorie production.
Ethanol production has risen rapidly over the last couple of years as shown in Appendix
Figure A10. An ethanol tax credit was established in 2005, but it was phased out in January
2012. Mandates, however, are still in eect. The 2005 US Energy Policy Act mandated
7.5 billion gallons of ethanol be used by 2012. The 2007 Energy Independence and Security
Act instituted a long-term mandate of using 36 billion by 2022, but limited the share that
could be derived from corn-based ethanol. It also accelerated the short-term mandate. In
2009, the US Renewable Fuels Standard (RFS) required reners and fuel blenders to blend
roughly 11 billion gallons of ethanol into gasoline. We examine the eect of the 2009 RFS on
world food prices. Currently, nearly all of U.S. ethanol is produced from corn, and 11 billion
gallons of ethanol would require roughly 4.07 billion bushels of corn assuming an average
of 2.7 gallons of ethanol per bushel of corn (D. Rajagopal, E. Sexton, D. Roland-Holst &
D. Zilberman 2007). This translates into roughly one third of US maize production in 2010
(12.4 billion bushels), or about 5 percent of world caloric production in 2010. Recall that
the largest negative historic production shocks was -0.057, so the annual impact of the US
ethanol mandate is roughly equivalent to the worst production shock on record, except that
the mandate is permanent, not transitory like the weather.
A byproduct from corn ethanol production, called distillers grains, can be used as feed
for livestock. While estimates vary, up to one third of the caloric input is said to be re-
coverable, but the nutritional content is debated and generally thought to be inferior. We
therefore present two estimates: our baseline model assumes that ve percent of world caloric
production is diverted into ethanol generation as well as a scenario where we assume that
one third of the calories is recycled as feed stock.
While 5 percent of world caloric production would be required for 11 billion gallons
of ethanol, the average daily US motor gasoline consumption is 0.39 billion barrels per
day.
23
Supplying approximately 8 percent of United States gasoline consumption requires
approximately 5 percent of world caloric food production.
4 Empirical Results
Here we report results using FAO data. Appendix Section A4 reports results using FAS
data, which are generally comparable.
23
Energy Information Administration: http://www.eia.doe.gov/basics/quickoil.html
14
4.1 Main Results
We summarize the main results in Table 1. Results include IV and 3SLS estimates, each with
multiple specications of the time trend. Elasticity estimates are reasonably stable across
models, varying between 0.087 and 0.116 for supply and -0.028 and -0.066 for demand. F-
statistics for rst-stage instruments, lagged yield shocks
t1
for the case of supply and
concurrent yield shocks
t
for the case of demand, are given at the bottom of the table. All
F-values are greater than 10, an accepted standard for strong instruments. Comparison of
the coecients on
t1
in the futures-price regression (panel A) and
t
in the current-price
regression (panel B) imply shocks aect futures prices nearly as much as current prices.
This is consistent with storage theory wherein transitory shocks are smoothed over time,
giving rise to autocorrelation in prices. It is also interesting that
t
is statistically signicant
in some of the futures price regression. This indicates that shocks are at least partially
forecastable.
24
There is a tradeo between the two estimation methods (IV or 3SLS). For IV specica-
tions we report robust standard errors throughout the paper (unless noted otherwise) that
account for arbitrary forms of heteroscedasticity and autocorrelation in the error term. The
3SLS results are more ecient than IV estimates, but 3SLS standard errors may be biased
if the error terms are not iid. An exercise reported in the appendix (Table A12) suggests
that 3SLS standard errors may be reasonable approximations. That exercise reports two
sets of standard errors for the IV results: uncorrected and robust standard errors. While
prices show signicant autocorrelation, yield shocks do not: Table A12 presents tests for
conditional heteroscedasticity as well as autocorrelation for the yield shocks
t
, which all
fail to reject the null that they are iid. Note that the second-stage elasticity estimates, the
main parameters of interest, have similar standard errors whether or not they are corrected
for heteroscedasticity and autocorrelation. This suggests that multi-stage standard errors
are mainly sensitive to whether the instrument is iid.
Table 1 also includes implied eects of the US ethanol mandate on world commodity
prices. A shift in demand q changes equilibrium price by
q
s
d
. We therefore dene a
price multiplier
1

d
using point estimates for the supply and demand elasticity, which
translates outward shifts in demand (changes in quantities) into price changes. Multipliers
range from 5.75 to 7.73, which imply that a 5% shift in demand food into fuels increase price
of the four staple commodities by 29%-39%. Our preferred estimate uses the more ecient
24
Partial forecastability of current shocks does not create bias in the supply equation because current
shocks are not excluded from the second stage.
15
three-stage least squares estimator and more exible time trends to account for the repeated
spikes in the data: the baseline estimate is an approximately 30% price increase, which is
on the conservative end of the range.
An unbiased estimate of the price increase needs to adjust for the fact that the expectation
of an inverse of a random variable does not equal the inverse of its expectation. To nd
the expected price increase we take one-million random draws from the estimated joint
distribution of estimated supply and demand elasticities and nd the price multiplier for each
one.
25
Expected price changes, taken as the average of the one-million simulated multipliers,
are larger, because the price multiplier is a convex function of the sum of two elasticities,
and the expected value of a convex function is larger than the function evaluated at the
arguments expected level. For the same reason, the 95% condence interval of the multiplier
is positively skewed.
An estimated price increase of 30% implies a decline in food consumers surplus equal
to 180 billion dollars annually. We obtain this number assuming (i) expected supply (along
the trend line) is the equivalent of feeding 7.92 billion people per year on 2000 calories per
day of raw grains and oilseed; (ii) prices in 2010 were 77 dollars per person per year; and
(iii) the ethanol mandate increases prices by 30%. About two thirds of ethanol production
comes from new production and about one third comes from reduced food consumption, i.e.,
1.67% of global production, given the supply elasticity tends to be about twice the size of
the estimated demand elasticity. The reduction in food consumption is equivalent to the
annual caloric requirement of about 132 million people.
There might also be an osetting increase in producer surplus. Some argue that the
ethanol mandate increases fuel supply, thereby lowering fuel cost, which in turn benets
consumers (Rajagopal et al. 2007). Alternatively, if past ethanol subsidies were insucient
to achieve the current mandate, it could increase the cost of gasoline production. A full
welfare analysis would require an account of this supply shift, plus assumptions about the
elasticities of supply and demand of fuels, which is beyond the scope of this paper. Otherwise,
if the net eect on fuel costs is small, in the agricultural market the policy largely amounts
to a shift from consumer surplus to producer surplus.
The baseline scenario assumes byproducts from ethanol production are not fed to animals.
We report estimates assuming zero recycling because studies dier in what fraction can be
recycled, and the demand shift can be easily adjusted to any assumed recycling ratio. For
25
Another approach would be to use shrinkage estimators to obtain more ecient estimates of the inverse
ratio. Since the elasticities are interesting in their own right, we decided to stick with standard OLS estimates,
as a shrinkage estimator would result in biased estimates of these elasticities.
16
example, if one third of the calories could be recovered as feed stock, the demand shift and
price increase would be multiplied by two-thirds, dropping the price increase to 20% rather
than 30%. For our preferred 3SLS estimates in Table 1, the positively skewed 95% condence
interval ranges from 14 to 35 percent.
4.2 Using Weather as an Instrument
While an absence of autocorrelation in aggregate yield shocks and an absence of correlation
in shocks between countries suggests that random weather component is much larger than
possible endogenous yield responses to price, a more defensibly exogenous instrument is
weather itself. In Table 2 we present results when weather variables rather than yield shocks
are used as instruments. We now use four instruments instead of one: a quadratic in both
average temperature and total precipitation.
26
Coecients from the log quantity regressions
are given in columns (a), while results from the log price regressions are given in columns
(b). Signicance levels decrease in both the rst stage and the second stage. Coecients
on the instruments in the supply equation seem reasonable. For example, the quadratic in
average temperature is hill-shaped with an optimal growing season average of 19

C or 67

F.
Instruments in the demand equation are neither individually nor jointly signicant and the
demand elasticities should hence be interpreted with caution.
27
While past weather shocks
are more defensible as an instrument, our baseline regression uses past yield shocks due to
the large increase in eciency.
4.3 Response on Extensive and Intensive Margins
Searchinger et al. (2008) and others argue that ethanol production drives up food commodity
prices, which, in turn, causes greater conversion of forest and pasture into crop production.
Because land use conversion (mainly deforestation) already accounts for up to 20% of global
CO
2
emissions, these indirect land-use changes might oset or even reverse apparent CO
2
emission savings derived from substituting ethanol for traditional gasoline. Thus, an in-
26
These weather variables are weighted averages of the University of Delaware gridded weather data, where
we weight grids in a county over the areas a crop is grown and the time during which it is grown. Annual
weather variables for each country and crop are aggregated using the growing area in a country. See the
Data Appendix A2.2 for more detail.
27
There are two reasons why it is empirically more challenging to estimate demand elasticities. First, the
bottom panel of Figure 1 shows that consumption is much smoother through time than production. Second,
these small changes in consumption are only indirectly derived using changes in inventories, which are harder
to obtain than production numbers.
17
teresting policy question is whether new corn ethanol supply comes from the intensive or
extensive margin. We investigate this issue in Table 3. The rst three columns regress the log
of growing area (for maize, rice, soybeans, and wheat) on the instrumented price to measure
responses on the extensive margin. The last three columns use the log of total fertilizer, one
of the major inputs that can be adjusted to increase production on the intensive margin.
28
The regressions are identical to the IV regression in our baseline model, except log growing
area or log fertilizer use replaces log quantity. The estimated area elasticity is 0.07-0.08,
while there is no signicant response for fertilizer usethe point estimate is negative. This
suggests that new supply likely comes from the extensive, not the intensive margin.
The estimated land-area elasticity is slightly smaller than the overall supply elasticity.
There will be less than a one-to-one relationship between output increases and land area
increases if higher-productivity countries happen to be more responsive to prices than low-
productivity countries. For example, if total land area increases by 5%, but areas with
higher-than-average yield increase area by 6% and areas with less-than-average yield increase
by 4%, total supply will increase by more than 5%. We therefore replicate the analysis for
individual countries and nd dierent sensitivities to world caloric shocks and world prices.
Major producers and exporters like the United States and Brazil show much larger elasticities
than the global average.
Although our land area elasticity for Brazil is comparable to Kanlaya J. Barr, Bruce A.
Babcock, Miguel Carriquiry, Andre Nasser & Leila Harfuch (2010) in magnitude, our esti-
mate for the US is signicantly larger. Agricultural programs of the US government have
historically driven the US area response. In times of low prices, farmers received subsidies in
exchange for setting previously cropped land idle (called set asides). At the same time, the
US government scaled up programs that pay farmers to idle land for purposes of reducing soil
erosion and protecting wildlife, water quality, and addressing other environmental concerns.
During periods of high prices, set asides and conservation programs have been scaled back.
When we regress the log of the growing area plus government-mandated set-asides and land-
retirement programs on instrumented price (panel C of Table 3), the estimated US elasticity
drops sharply. Thus, much of the land supply response in the US derives partly, and perhaps
mainly, from agricultural policy responding to prices. During the recent price spike, however,
conserved lands declined only modestly.
29
Given the relatively subdued responses of recent
28
FAO does not provide crop-specic fertilizer use. The data is hence for all crops, not just the four staples.
The data is limited to 1961-2002 since reporting practices changed in 2003.
29
Set asides ended with the Federal Agriculture Improvement and Reform Act of 1996. Since the rst
Renewable Fuel Standards in 2005, land enrolled in the Conservation Reserve Program has fallen from about
18
US agricultural policy and that the US gures so prominently in world production of sta-
ple grains and oilseeds, supply response today might be somewhat less than our estimates,
which would make the price and welfare impacts larger. However, land in US set aside and
conservation programs is thought to be signicantly inferior to land under cultivation, so it
is not clear how much smaller the supply elasticity may be.
Using our estimated elasticities, total caloric production would increase by roughly 3.3
percent, or 190 trillion calories. In 2010, worldwide planting area for the four commodities
was 1.6 billion acres. Using the average elasticity of 0.077 from Table 3 on the predicted
30 percent price change, total acreage is predicted to have increased by 2.3 percent, or 36
million acres, which is the size of the total land area (not agricultural area) of the US state
of Iowa.
4.4 Comparison to Traditional Methods
We compare the new estimates to other approaches without a rst stage in Table 4. The
rst three columns report elasticity estimates using OLS, while the last three columns uses
seemingly unrelated regressions (SUR). These models use uninstrumented price and futures
prices, not predicted price in the spirit of Nerlove (1958). The SUR regressions do account for
the correlation of innovations u
t
and v
t
. We include this regression mainly to illustrate likely
endogeneity bias in comparison to IV and 3SLS estimates in Table 1. The OLS regressions
give extremely inelastic estimates of supply and demand, 0.02 for supply if we include 4
spline knots and -0.018 for demand. The estimates also become much more sensitive to the
exibility of the time controls. While the demand elasticity is statistically signicant at the
10% level if we include 4 spline knots, the standard errors are small and (if assumptions are
accepted, which is dubious) rule out elasticities less than -0.038 with 97.5 percent condence.
The supply is statistically signicant if we use 3 spline knots, which rules out elasticities
greater than 0.106 with 97.5 percent condence, or even smaller quantities for other time
controls. The predicted price increase of the ethanol mandate (diverting 5 percent of world
production) would be much larger, as the price multiplier is at least 25, or 4 times the
baseline. For the seemingly unrelated regressions (SUR), the price multiplier is at least
three times as large. Instrumenting prices with yield shocks is therefore crucial; otherwise
the predicted price increase would likely be too large. Our concern with the traditional
approach is that both futures prices and lagged prices incorporate anticipated area responses
and are hence endogenous.
37 million acres in 2008 to about 29 million acres today (Daniel Hellerstein & Scott Malcolms 2011).
19
4.5 World Versus Local Prices
Our baseline model sums over all countries in the world. ADM, Bunge, and Carghill are
internationally operating arbitrageurs that work to equate possible price dierentials between
countries, subject to transportation costs. Prices in countries that have a port seem to be
strongly associated with one another. For example, Paul L. Fackler & H useyin Tastan
(2008) test whether the law of one price holds for soybeans in the United States, Brazil,
and Europe and cannot reject that markets are cointegrated. While landlocked countries
might have prices that dier from the world market as arbitrage between prices becomes
more costly, most large producers used in this study (see appendix Tables A1 and A2) do
have ports.
We use price data from the US Chicago Board of Trade, and one might wonder how
appropriate it is as a global measure. Table 5 disaggregates yield shocks into those in the
US and the rest of the world (RW). Shocks in both regions are rescaled using the ratio of the
predicted production in the region divided by predicted global production. For brevity, the
table presents only elasticities and the predicted commodity price increase, while individual
coecients for both the US and the rest of the world are given in Appendix Table A4.
Panel C presents a test whether the coecients on the instruments derived from US yield
deviations equal those for the rest of the world. In no case can we reject that the coecients
are equal at any conventional signicance level; all p-values are above 0.2. In other words, a
production shock in Brazil does not have a signicantly dierent eect on US futures prices
than an equally sized shock in the US. The estimated elasticities are also comparable to
what we obtained in Table 1.
4.6 Long-Run Response to Price
Identication of our supply response relies on exogenous price variation that is driven by
production shocks in the previous period. One concern is whether we are estimating a
short-run elasticity that is a lower bound for the long-run elasticity.
30
Two observations
speak against this: rst, prices are both volatile and show a large degree of persistence,
30
It is also possible that the long-run elasticity is smaller than the short-run elasticity. This could happen
if, in the short run, farmers respond to higher prices by using practices that boost output temporarily to the
detriment of long-run productivity. Specically, long-run supply response could be diminished by (a) over-
extracting from aquifers and thereby increasing future costs of irrigation; (b) accumulation of pest problems
from an expanded monoculture; (c) reduced soil quality, especially if land that is newly cultivated in response
to higher prices is marginal, has thin topsoil and cannot be cropped continuously. Such challenges are well
known and have long been pervasive in agriculture.
20
so farmers can expect temporary production shocks to have long-run price eects. There
has been an active debate following Angus Deaton & Guy Laroque (1996) surrounding
apparently excessive autocorrelation in prices. While our variation stems from short-run
weather shocks, farmers can expect price changes from these weather shocks to persist. This
persistence is also manifested in the relationship between crop and farmland prices. The
run-up in commodity prices resulted in an almost proportional increase in farmland prices in
2005-2008. Since farmland prices are forward looking, this is only ecient if farmers expect
commodity prices to stay high, which would seem unlikely if a longer-run supply response
were to erode the price shock. Second, our estimate of the longer-run supply response is
consistent with our short-run estimates (Table 6). This longer run analysis includes two
lags in the supply equation, where prices are again instrumented with the previous periods
weather shock. The table displays the coecients on the futures price in the current period

s,t
and lagged futures prices (
s,t1
,
s,t2
) as well as the sum of the three coecients, which
is the combined long-run impact. The sum of coecients is slightly larger, but very close to
our baseline estimate in Table 1 where we only consider futures prices in the current period.
4.7 Multicrop Systems
Our baseline estimates pooled all four basic staples (maize, rice, soybeans, and wheat) while
ethanol production relies almost exclusively on maize. If the four commodities are not
perfect substitutes, the mandate could cause corn prices to rise more than the other three
crops.
31
We therefore consider a 2x2 system of supply and demand equations, where the two
commodities are maize and the sum of the other three crops (Table 7). We present results for
the specication with 4 spline knots, akin to column (2b) of Table 1. The rst two columns,
(1a) and (1b), as well as the last two columns, (2a) and (2b), are from a single regression. The
only dierence is that the last two columns impose symmetry of the cross-price elasticities,
which cannot be rejected in the unrestricted version of the model (a p-value of 0.87). Own-
price supply elasticities are positive, but only statistically signicant if we impose symmetry.
Cross-price supply elasticities are never signicant, but these have large standard errors. We
cannot rule out the possibility that the cross-price elasticity equals the own-price elasticity.
32
31
Appendix Table A5 pool quantities and prices for all four commodities, but separate yield shocks for
each of the four commodities. The bottom of the tables present tests whether the coecients on the two
shocks are the same, and equality cannot be rejected except if we model the time trend least exible as a
restricted cubic spline in time with 3 knots.
32
In our view, substitutability is reasonably large for relatively small variations in adjustments to global
crop mix. For example, wheat, corn and soybeans are substitutable over many parts of the Midwestern
United States. In other parts of the world, e.g., India and China, some land is substitutable between wheat
21
Own-price demand elasticities are negative and signicant. The size is larger than what we
observe when we aggregate all four commodities. This is deceptive as the cross-price demand
elasticities are quite large in magnitude, and signicant if we impose symmetry. Consumers
or agricultural producers that use commodities as inputs (e.g., feedlots) have the option to
switch between commodities as relative prices change. Studies that focus on one commodity
might therefore obtain an elasticity that is too high.
To derive price implications of this model, let q be the (2x1) column vector of the quantity
of maize and three-crop aggregate commodity and let p be corresponding vector of prices.
The demand system is q =
d
p and the supply system is q =
s
p.
33
The eect of the US
ethanol mandate, which diverted 5% of world caloric production of the four commodities,
or 14% of the worlds maize production into ethanol, is hence [
s

d
]
1
[1 0]

q. For
the same price increase, the multiplier will be lower as the mandate diverts 14% of maize
production compared to 5% of world caloric production, which is larger by a factor of 2.8.
Panel C of Table 7 displays (i) the multiplier that uses the point estimates of the own-price
and cross-price elasticities as well as (ii) the expected multiplier and (iii) the 95% condence
interval if we sample one million draws from the joint distribution of the parameters. The
predicted price increase for corn is 51% (3.63 0.14), while the predicted price increase
for the other commodities is 27% (1.95 0.14). Although the own-price eect for corn is
statistically signicant at the 95% condence level and 50% larger than the cross-price eect
for the other commodities, the two multipliers are not signicantly dierent from one another
due to the lack of precision in the 2x2 system.
34
The price increases are smaller using FAS
data.
We are mainly interested is the ethanol-induced increase in overall expenditures for com-
modity calories. The baseline model implicitly assumes the four commodities are perfect sub-
stitutes, with the overall eect embodied by the price increase of the aggregate commodity,
calories. For the disaggregate analyses, the overall price increase is the production-weighted
average of individual commodity price increases. Multipliers that translate changes in aggre-
gate demand into predicted changes in the overall price are given in the notes to Table 7.
35
and rice. Especially since aggregate shocks are small and buered by storage, a chain of substitutions could
make aggregate substitutability quite large, at least over the range of aggregate weather shocks. But since
prices consequently move together, it is dicult to precisely identify cross-price elasticities.
33
For a more detailed model, see Appendix Section A1.2.
34
Results using both 4 and 5 spline knots are shown in appendix Table A6 for FAO data and appendix
Table A10 for the FAS data.
35
We take the production-weighted average of the individual multipliers, where the production weights
are the average fraction of world caloric production in 2005-2010 for each of the crops. We then divide the
average multiplier by the maize share to transfer units into multiplies of aggregate demand instead of maize
22
These multipliers are 8.37 in the unrestricted system and 7.21 if we impose symmetry, which
is slightly higher than the baseline multiplier of roughly 6 in the pooled analysis.
36
The 95%
condence interval increases to (4.8, 12.6) under the more ecient estimate where we impose
symmetry, and increases signicantly more to (0.6, 31.5) in the less ecient unrestricted sys-
tem. Since condence intervals are positively skewed, the upper bound increases more than
the lower bound decreases.
Table 8 reports results if we disaggregate the analysis further and estimate a 4x4 system of
supply and demand for each of the commodities. Prices of each commodity are instrumented
with past yield shocks (supply) or concurrent yield shocks (demand) for each of the four
commodities. We switch to using the FAS data, which has three more observations, as the
analysis already has limited degrees of freedom. Prices of the four commodities move closely
together, which makes it is dicult to identify them separately. Instruments are weak and
results should be interpreted with care. While the point estimates for the price multipliers
are roughly comparable to the 2x2 system, the 95% condence interval includes zero for each
of the four commodities due to the large standard errors. We take the table as suggestive
evidence that our pooled analysis gives number that are roughly comparable to a 4x4 system.
The predicted price increase for maize is 59% (4.21 0.14) in the unrestricted system
and 36% (2.54 0.14) if we impose symmetry of cross-price elasticities. At the same time,
predicted price increases for other commodities are lower. The multipliers for translating
shifts in aggregate demand into changes in the overall price of calories are 7.53 and 3.25,
respectively, which is again reasonably similar to our baseline estimate of 6.
37
Since the
estimates are less precise, the 95% condence interval increase to (-6.6, 14.5) if we impose
symmetry and (-43.8, 61.6) in the unrestricted system.
In summary, even if we relax the assumption of perfect substitutability, the predicted
price increase in the overall expenditures for the four commodities remains relatively robust
around a multiplier of 6. At the same time, we cannot rule out a maize price increase that
is twice as large as the overall increase for calories. But this larger price increase for corn
is counterbalanced by lower prices increases for other commodities. Since the multi-crop
systems are more exible and less precisely estimated, the 95% condence intervals increase,
with the upper bound rising signicantly more than lower bound declines due to positive
skewness.
demand.
36
The multipliers are 5.48 and 5.19 if we use the FAS data in Table A10.
37
The multipliers are 6.63 and 4.26 if we use the FAO data in Table A7.
23
4.8 Further Robustness Checks
An online appendix reports a number of additional sensitivity checks that we briey sum-
marize here. Results are generally robust in the sense that the price multiplier is around 6
in most specications.
The 2009 Renewable Fuel Standard (RFS) changed fuel supply and gasoline prices, and
thereby inuenced agricultural production costs.
38
If this shift in supply were large enough,
it would confound our estimated elasticities. One way to ensure this is not the case is
to re-estimate the model using only data before the introduction of the ethanol mandate.
Table A13 limits the analysis to 1961-2003 or 1961-2005, so the data set stops before the
recent run-up in prices and the implementation of the 2007 or 2009 Renewable Fuel standards.
Results are similar.
Table A14 varies the timing at which we evaluate futures prices. Final results of a years
production shock are not fully revealed before December. On the other hand, planting
decisions for next years harvest of winter wheat are made in September in the northern
hemisphere. We therefore consider futures prices in September of the previous year (Panel
A), or March of the concurrent year (Panel B), because production shocks in the Southern
hemisphere are resolved by March of the concurrent year. Panel C again evaluates prices at
the end of the year, but uses the spot price in the demand equation instead of the futures
price during the month of delivery. Results are similar in all cases.
To check the sensitivity of our estimates to the derivation of yield shocks, Table A15
replicates the analysis using linear time trends, restricted cubic splines with 4 knots (3
variables), or restricted cubic splines with 5 knots (4 variables) in the derivation of the yield
shocks. Our baseline specication used 3 spline knots (2 variables). The results are again
insensitive to the chosen time trend in the derivation of yield shocks.
Table A16 further examines the derivation of yield shocks. Panel A replicates the analysis
by using yield shocks that are not jackknifed as in our baseline. Panels B and C allow yields
to be autocorrelated, which may arise from technological break-throughs or if weather has
autocorrelation. We t models up to MA(1) or MA(3), respectively, for each country and
crop. For example, in panel C, we t four models.
39
The model with the lowest BIC is
38
The RFS, which might nominally be considered an implicit cost or tax on gasoline production, formerly
included a large subsidy for ethanol production. Now that ethanol plants are in place (xed costs are largely
sunk), it is not clear whether current and past RFS ultimately served to subsidize or tax fuel. Another
complicating feature is the substantial size of US demand for gasoline. Since ethanol displaced about 10
percent of oil formerly used in gasoline production, the biofuel mandate may have reduced world oil prices.
39
MA(0), MA(1), MA(2), and MA(3).
24
chosen, and yield deviations are the innovations in a given period, i.e., the new information
that has been revealed. Results remain robust.
Table A17 reports results from three further sensitivity checks. Given that prices show a
high degree of persistence, we include the second lag of prices in panel A. Log futures prices
for period t that are traded at the end of t 1 are instrumented with the yield shock in
t1
,
while controlling for the second lag of the dependent variable, i.e., log futures prices with a
maturity in t 1 that are traded in t 2. Panel B uses two lagged shocks
t1
and
t2
to
instrument futures prices. The panel also presents results from overidentication tests as we
now include two instruments, but none of them have p-values below 0.40. Panel C rescales
the caloric conversion ratios so the average price in 1961-2010 of all four crops equals that of
maize.
40
The original as well as the rescaled price series are shown in Figure A9. We do this
as the average price of rice is highest, and shifts in production between crops hence alters
the overall price. However, the results are insensitive to this rescaling.
5 Conclusions
Our analysis makes two contributions to the literature. We rst introduce a new framework
on how to identify supply elasticities for storable commodities and apply it in the agricultural
setting: weather-induced yield shocks can facilitate estimation of both supply and demand
of agricultural commodities. In applying this idea to the available data we found it more
practical to use yield shocks (deviations from time trends of output per land unit) instead
of using weather directly, which gives a weaker rst stage as global annual production has
to be linked to aggregate annual weather measures. We obtain similar point estimates using
both weather and yield shocks. The use of weather variables instead of yield shocks may be
a promising direction for future research. To make such an approach viable will require rich
weather data and a parsimonious model linking weather to yield.
While the idea of using weather to identify demand is an old idea, it has rarely been
applied, and to our knowledge, has never been applied on a global scale. Our approach
of using past shocks to identify supply is new and results in estimates that are far more
elastic than those obtained using traditional methods. Our model is simple. By aggregating
crops and countries, we obscure the likely importance of many important factors, especially
the imperfect substitutability of crops, transportation costs, taris, trade restrictions, and
40
In other words, the price series of wheat, soybeans and rice are each multiplied by a constant so the
average price equals the maize average price.
25
agricultural subsidies. But what the model lacks in complexity, it gains in transparency. We
see these estimates as a complement to larger and more sophisticated computational models,
wherein local supply and demand responses are either assumed or estimated individually,
and transportation and trade restrictions are carefully accounted for. Our estimates provide
a useful reality check for whether micro complexities add up to patterns that are observable
in the aggregate data.
The second contribution is to estimate elasticities for caloric energy from the worlds most
predominant food commodities. With this perspective in mind, we consider price and quan-
tity predictions stemming from the rapid and largely policy-induced expansion of ethanol
demand. The 2009 Renewable Fuels Standard diverted approximately 5 percent of world
caloric production of the four staple crops into ethanol production. Since commodities are
storable and current ethanol production levels were largely anticipated since the Energy Pol-
icy Act of 2005, it is reasonable to expect that futures prices would have quickly incorporated
the shift in demand, even though it has taken several years for ethanol production growth
to be realized. Using our preferred estimated supply and demand elasticities, a shift of this
magnitude would cause an estimated increase in price equal to 30 percent if none of the corn
used for biofuel production can be recycled. If the distillers grains, a byproduct from corn
used in ethanol production, are recycled as feed stock, the price increase would be scaled
back accordingly. For example, if one third of the calories can be recovered as feedstock,
the price increase would be lowered to 20 percent. These predicted price increases are far
smaller than those obtained using a SUR model that does not account for the endogeneity
of prices. Our prediction is slightly larger than the USDA projected price increase made for
corn in 2007, and would suggest that the ethanol mandate had some role in the four-fold
price increase, but by no means can account for all of it.
It is also important to consider uncertainty surrounding these baseline estimates. The
95% condence bands around the induced price increase have a large, positive skew. Even
taking distillers grains into account, the ethanol-induced price increase for food commodities
as a whole may be as low as 14 percent, just 6 percentage points below the baseline of 20%;
but it may also be as large as 35 percent, a full 15 percentage points above the baseline.
41
Multi-crop models relax the perfect substitutability between the four crops. Price increases
may vary across crops, but the point estimates for the increase in total expenditures for the
four crops remains comparable. These estimates are less precise, and the 95% condence
bands increase more on the upper end than the lower end due to the positive skewness.
41
Using the 3SLS results in Table 1.
26
Our analysis suggests factors besides the US ethanol policy likely contributed strongly
to the rapid price rise between 2005 and 2008. These factors may include rapid growth in
the demand for basic calories from emerging economies like China. This demand growth has
accelerated through demand for meat and other animal-based foods, which are highly income
elastic. While population doubled in China between 1961 and 2006, meat consumption grew
33-fold (FAO), and comprised a little less than a third of the worlds meat consumption in
2007. Meat requires between 5-10 times the agricultural area to obtain the same amount of
calories as a vegetarian diet. This demand growth resumed as the world economy recovers
from the nancial crisis and subsequent recession and corn prices jump to new highs in
2011. Another reason for the large price increase is a decrease in supply due to detrimental
weather, such as prolonged drought in Australia, coupled with low worldwide inventories.
The implications of increases in demand coupled with the potential of production shortfalls
in the face of changing climate will likely add further upward pressure on future prices.
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29
Figure 1: World Production and Consumption of Calories (FAO Data)
0
1
2
3
4
5
6
7
8
B
i
l
l
i
o
n

P
e
o
p
l
e

(
2
0
0
0

c
a
l
o
r
i
e
s
/
d
a
y
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
year
Maize Wheat Rice Soybeans
2
3
4
5
6
7
8
B
i
l
l
i
o
n

P
e
o
p
l
e

(
2
0
0
0

c
a
l
o
r
i
e
s
/
d
a
y
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Consumption Production
Notes: The top panel shows world production of calories from maize, wheat, rice, and soybeans for 1961-
2010. The bottom panel shows combined production and consumption. Storage allows consumption to be
smoothed over periods. The y-axis in both panels gives the number of people who could be fed on a 2000
calories/day diet by hypothetically only consuming the four commodities.
30
Figure 2: Commodity Prices
0
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
P
r
i
c
e

o
f

2
0
0
0

C
a
l
o
r
i
e
s

P
e
r

D
a
y

(
$
2
0
1
0
/
p
e
r
s
o
n
/
y
e
a
r
)
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Year
Maize Wheat Rice Soybeans
Notes: Figure shows caloric prices over time for maize, wheat, rice, and soybeans for 1913-2010. The y-axis
gives the annual cost of 2000 calories per day. Price series is taken from National Agricultural Statistics
Service.
31
Table 1: Supply and Demand Elasticity (FAO Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast.
s
0.102

0.096

0.087

0.116

0.112

0.097

(0.025) (0.025) (0.020) (0.019) (0.020) (0.019)


Shock
t
1.184

1.229

1.211

1.249

1.279

1.241

(0.146) (0.138) (0.105) (0.111) (0.101) (0.091)


First Stage
t1
-3.901

-3.628

-3.824

-3.546

-3.113

-3.226

(1.145) (0.945) (0.910) (0.800) (0.704) (0.731)


First Stage
t
-2.918

-2.276

-2.372

-2.885

-2.350

-2.420

(1.647) (1.294) (1.279) (0.967) (0.815) (0.819)


Panel B: Demand Equation
Demand Elast.
d
-0.028 -0.055

-0.054

-0.034 -0.062

-0.066

(0.021) (0.024) (0.022) (0.023) (0.022) (0.021)


First Stage
t
-5.564

-4.655

-4.770

-5.354

-4.445

-4.332

(1.489) (1.300) (1.249) (1.384) (1.210) (1.186)


Panel C: Eect of Demand Shift
Multiplier
1

d
7.73 6.63 7.06 6.65 5.75 6.12
Exp. Multiplier 8.39 7.08 7.42 6.90 5.92 6.31
(95% Conf. Int.) (5.2,15.3) (4.6,12.2) (5.0,12.0) (4.9,10.4) (4.3,8.5) (4.6,9.1)
F
1st-stage
Supply 11.61 14.73 17.66
F
1st-stage
Demand 13.97 12.81 14.60
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Tables show regression results for the supply and demand of calories. The rst three columns
(1a)-(1b) use instrumental variables, while columns (2a)-(2c) use three stages least squares. Columns (a),
(b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Panel A gives
results for the supply equations (1) and (2), i.e., coecients above the vertical line give the results for log
quantity, while coecients below the line give rst stage results of log price. Similarly, panel B gives results
for demand equations (3) and (4). Coecients on time trends are suppressed. Panel C gives the eect of
a demand shift on commodity prices: multipliers translate percentage changes in demand into percentage
changes in equilibrium price. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
32
Table 2: Supply and Demand Elasticity - Weather as Instrument (FAO Data)
(1a) (1b) (2a) (2b) (3a) (3b)
log Q log P log Q log P log Q log P
Panel A: Supply Equation
Supply Elast.
s
0.085

0.089 0.091

(0.048) (0.055) (0.053)


Temperature T
t1
3.252

3.080

3.050

(0.863) (0.738) (0.768)


Temperature T
2
t1
-0.084

-0.080

-0.078

(0.022) (0.019) (0.019)


Precipitation P
t1
2.937 2.597 3.174
(2.249) (1.923) (2.097)
Precipitation P
2
t1
0.130 -0.193 -0.497
(1.072) (0.922) (0.982)
Temperature T
t
0.037 1.776

-0.015 1.413

-0.041 1.259

(0.184) (0.750) (0.201) (0.669) (0.195) (0.691)


Temperature T
2
t
-0.002 -0.045

-0.000 -0.035

0.000 -0.031

(0.005) (0.019) (0.005) (0.017) (0.005) (0.018)


Precipitation P
t
0.547 2.274 0.498 1.952 0.610

2.847
(0.332) (1.805) (0.363) (1.611) (0.371) (1.742)
Precipitation P
2
t
-0.426

-0.694 -0.431

-0.952 -0.464

-1.233
(0.143) (0.829) (0.156) (0.737) (0.157) (0.763)
Panel B: Demand Equation
Demand Elast.
d
-0.014 -0.056

-0.047

(0.025) (0.028) (0.025)


Temperature T
t
1.282 1.099 1.305
(1.209) (1.003) (1.038)
Temperature T
2
t
-0.034 -0.030 -0.035
(0.030) (0.025) (0.026)
Precipitation P
t
1.991 1.636 0.759
(3.227) (2.675) (2.853)
Precipitation P
2
t
1.075 0.705 1.015
(1.460) (1.211) (1.266)
Panel C: Eect of Demand Shift
Multiplier
1

d
10.07 6.91 7.25
Exp. Multiplier 14.13 9.35 7.71
(95% Conf. Int.) (4.8,52.9) (3.8,25.7) (4.0,27.4)
Observations 46 46 46 46 46 46
Spline Knots 3 3 4 4 5 5
Notes: Table replicates the three-stage least square results in Table 1 except that prices are instrumented
with weather (quadratic in average temperature and precipitation) instead of yield shocks. Column pairs (a)
and (b) present results from one joint regression, where columns (a) give results for the quantity regression,
and columns (b) the results for the price regressions. Columns (1a-b), (2a-b), and (3a-b) include restricted
cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
33
Table 3: Growing Area and Fertilizer Use As a Function of Instrumented Prices (FAO Data)
Log Growing Area Log Fertilizer
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: World
Futures Price p
t
|
t1
0.082

0.078

0.071

-0.070 -0.071 -0.066


(0.021) (0.023) (0.017) (0.094) (0.073) (0.063)
Panel B: US
Futures Price p
t
|
t1
0.289

0.278

0.278

0.026 0.021 0.097


(0.075) (0.075) (0.071) (0.173) (0.095) (0.079)
Panel C: US Growing Area + Set-Asides
Futures Price p
t
|
t1
-0.071 -0.050 -0.095

(0.065) (0.055) (0.045)


Panel D: Brazil
Futures Price p
t
|
t1
0.261

0.217 0.174 -0.150 -0.166 -0.041


(0.141) (0.142) (0.111) (0.506) (0.262) (0.260)
Observations 46 46 46 41 41 41
Spline Knots 3 4 5 3 4 5
Notes: Table presents IV regression results. The regressions are equivalent to the IV results in Table 1
except that the second-stage dependent variable is dierent: columns (1a)-(1c) use log growing area and
columns (2a)-(2c) log fertilizer. Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4,
and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
34
Table 4: Comparison to Uninstrumented Regressions (FAO Data)
OLS SUR
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Elasticities
Supply Elast.
s
0.051

0.020 0.023 0.065

0.039 0.040

(0.028) (0.031) (0.029) (0.020) (0.025) (0.024)


Demand Elast.
d
0.012 -0.018

-0.016

0.023

-0.011 -0.010
(0.011) (0.010) (0.009) (0.009) (0.009) (0.008)
Panel B: Eect of Demand Shift
Multiplier
1

d
25.59 26.19 25.55 23.64 19.89 20.04
Exp. Multiplier 55.05 22.85 15.26 77.51 37.23 15.51
(95% Conf. Int.) (-206,248) (-227,262) (-205,247) (12,120) ( 8,122) ( 9,118)
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except that prices are not instrumented. Columns (1a)-(1c) give results for
OLS regressions, and columns (2a)-(2c) from Seemingly Unrelated Regressions (SUR). Columns (a), (b), and
(c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate signicance
levels:

: 1%;

: 5%;

: 10%.
35
Table 5: Supply and Demand Elasticity - Separating Shocks in US from Rest of World (FAO
Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Elasticities
Supply Elast.
s
0.107

0.089

0.083

0.112

0.105

0.091

(0.022) (0.025) (0.020) (0.019) (0.020) (0.018)


Demand Elast.
d
-0.021 -0.053

-0.053

0.003 -0.049

-0.051

(0.020) (0.022) (0.021) (0.017) (0.019) (0.017)


Panel B: Eect of Demand Shift
Multiplier
1

d
7.84 7.07 7.39 9.14 6.50 7.05
Exp. Mult. (s.e.) 8.35 7.44 7.78 9.62 6.71 7.28
(95% Conf. Int.) (5.3,14.7) (4.8,13.3) (5.2,12.6) (6.5,15.5) (4.9,9.8) (5.3,10.6)
Panel C: P-value on Equal Coecients
S
1st-stage

t1
equal 0.20 0.56 0.77 0.81 0.50 0.61
D
1st-stage

t
equal 0.42 0.24 0.27 0.77 0.36 0.38
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except caloric shocks for the United States and the Rest of the World are
considered separately. Both shocks are normalized by the predicted fraction of global production to make
the shocks comparable in size. Panel C presents p-values from tests for whether the shock coecients are
the same when used as instruments for price. Coecients for the US and the Rest of the World (RW) are
given in Appendix Table A4. Columns (a), (b), and (c) include restricted cubic splines in times with 3, 4,
and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
36
Table 6: Supply and Demand Elasticity - Lagged Supply Price (FAO Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply:
s,t
0.066

0.059 0.060

0.074

0.086

0.079

(0.039) (0.037) (0.031) (0.031) (0.030) (0.027)


Supply:
s,t1
0.030 0.024 0.028 0.023 0.004 0.013
(0.048) (0.042) (0.035) (0.031) (0.027) (0.024)
Supply:
s,t2
0.041 0.039 0.031 0.025 0.029

0.026

(0.037) (0.033) (0.030) (0.016) (0.017) (0.015)


Combined

=0

s,t
0.137

0.121

0.118

0.123

0.119

0.118

(0.018) (0.020) (0.015) (0.016) (0.021) (0.019)


Panel B: Demand Equation
Demand Elast.
d
-0.019 -0.059

-0.055

-0.028 -0.051

-0.051

(0.021) (0.025) (0.026) (0.020) (0.017) (0.017)


Panel C: Eect of Demand Shift
Multiplier
1

d
6.41 5.53 5.75 6.63 5.90 5.91
Exp. Multiplier 6.63 5.73 5.94 12.61 7.86 8.20
(95% Conf. Int.) (4.8,9.8) (4.1,8.6) (4.3,8.7) (5.9,28.2) (5.0,13.9) (5.2,14.4)
Observations 44 44 44 44 44 44
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except that it includes two lags of the price in the supply equation. Columns
(a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate
signicance levels:

: 1%;

: 5%;

: 10%.
37
Table 7: Supply and Demand Elasticity - Two Crop System (FAO Data)
Unrestricted System Symmetry Imposed
Log Log Log Log
Maize Other Maize Other
(1a) (1b) (2a) (2b)
Panel A: Supply System
Log Maize Price 0.086 -0.024 0.136

-0.001
(0.118) (0.078) (0.070) (0.047)
Log Other Price 0.040 0.105

-0.001 0.088

(0.088) (0.058) (0.047) (0.036)


Panel B: Demand System
Log Maize Price -0.271

0.221

-0.269

0.240

(0.123) (0.124) (0.099) (0.102)


Log Other Price 0.248

-0.336

0.240

-0.361

(0.136) (0.132) (0.102) (0.113)


Panel C: Eect of Maize Demand Shift
Multiplier 4.14 2.31 3.63 1.95
Exp. Multiplier 4.58 2.57 4.08 1.90
(95% Conf. Int.) (1.7,15.6) (-1.0,9.1) (2.6,7.1) (0.5,3.6)
P-val (symmetry) 0.870 . . .
Observations 46 46 46 46
Spline Knots 4 4 4 4
Notes: Table replicates 3SLS results with 4 knots from Table 1, except that calories from the four crops
are split into a 2x2 system: maize (M) and all other crops (O). Columns (a) and (b) present results from
one joint regression, where columns (a) give the results for the maize regression and columns (b) the results
for the aggregated crop (rice, soybeans, and wheat). The rst two columns do not impose symmetry, while
the last two do. The multiplier gives the price increase for a 1% outward shift in demand for maize, while
baseline results give the multiplier on aggregate demand for maize, rice, soybeans, and wheat. To make
the multiplier comparable to the pooled analysis, we derive the production-weighted average multiplier of
all commodities, which is 8.37 in the unrestricted system and 7.21 if we impose symmetry. Stars indicate
signicance levels:

: 1%;

: 5%;

: 10%.
38
Table 8: Supply and Demand Elasticity - Four Crop System (FAS Data)
Unrestricted System Symmetry Imposed
Log Log Log Log Log Log Log Log
Maize Rice Soybeans Wheat Maize Rice Soybeans Wheat
(1a) (1b) (1c) (1d) (2a) (2b) (2c) (2d)
Panel A: Supply System
Log Maize Price 0.207

-0.019 -0.734 -0.123 0.270

-0.016 -0.303

0.107

(0.121) (0.043) (0.546) (0.163) (0.101) (0.065) (0.168) (0.061)


Log Rice Price 0.043 0.048 0.350 0.111 -0.016 0.032 0.078 0.036
(0.094) (0.033) (0.426) (0.127) (0.065) (0.076) (0.145) (0.050)
Log Soybeans Price -0.252 0.085 0.705 0.010 -0.303

0.078 0.554 -0.163


(0.177) (0.062) (0.761) (0.240) (0.168) (0.145) (0.452) (0.127)
Log Wheat Price 0.088 -0.019 -0.229 0.059 0.107

0.036 -0.163 0.100


(0.099) (0.035) (0.417) (0.135) (0.061) (0.050) (0.127) (0.063)
Panel B: Demand System
Log Maize Price -0.244

0.153

0.227 -0.065 -0.287

0.141

0.078 0.068
(0.078) (0.054) (0.193) (0.083) (0.066) (0.032) (0.068) (0.045)
Log Rice Price 0.061 0.007 -0.145 0.014 0.141

-0.017 -0.114

-0.071

(0.046) (0.031) (0.131) (0.051) (0.032) (0.031) (0.038) (0.030)


Log Soybeans Price -0.008 -0.081 -0.329 0.043 0.078 -0.114

-0.236

-0.039
(0.107) (0.075) (0.238) (0.110) (0.068) (0.038) (0.109) (0.065)
Log Wheat Price 0.199

-0.152

-0.063 -0.109 0.068 -0.071

-0.039 -0.095
(0.079) (0.055) (0.183) (0.083) (0.045) (0.030) (0.065) (0.060)
Panel C: Eect of Maize Demand Shift
Multiplier 4.21 1.99 3.11 0.94 2.54 -1.18 1.70 1.21
Exp. Multiplier 3.00 5.41 1.34 1.07 2.77 3.48 1.98 -3.52
(95% Conf. Int.) (-20.1,28.1) (-33.4,40.0) (-19.7,24.3) (-17.0,18.9) (-5.2,11.5) (-16.6,16.1) (-3.4,7.1) (-13.3,14.5)
P-val (symmetry) 0.201 . . . . . . .
Observations 49 49 49 49 49 49 49 49
Spline Knots 5 5 5 5 5 5 5 5
Notes: Table replicates 3SLS results with 5 knots from Table 1 except that each of the four crops is modeled separately. Columns (a)-(d)
present results from one joint regression. The rst four columns do not impose symmetry, while the last four do. The multiplier gives the price
increase for a 1% outward shift in demand for maize, while baseline results give the multiplier on aggregate demand for maize, rice, soybeans,
and wheat. To make the multiplier comparable to the pooled analysis, we derive the production-weighted average multiplier of all commodities,
which is 7.53 in the unrestricted system and 3.25 if we impose symmetry. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
3
9
Identifying Supply and Demand Elasticities of Agricultural
Commodities: Implications for the US Ethanol Mandate
Michael J. Roberts

and Wolfram Schlenker

Online Appendix

Department of Agricultural and Resource Economics, North Carolina State University, Box 8109, Raleigh,
NC. Email: michael roberts@ncsu.edu.

School of International and Public Aairs, Columbia University, 420 West 118th Street, Room. 1308, MC
3323, New York, NY 10027. Email: wolfram.schlenker@columbia.edu.
A1 Model
A1.1 Validity of
t
as Instrument
Our baseline model uses log yield deviations
cit
for crops c in country i and year t. We
are tting crop-and-country specic time trends g
ci
(t) in regressions of log yields y
cit
, i.e.,
y
cit
= g
ci
(t) +
cit
.The annual shock
t
is a weighted average of all shocks. The weights
cit
depend on predicted yields y
cit
= e
g
ci
(t)+

2
2
(where
2
is the estimated variance of the error
terms), growing area a
cit
, and the caloric content of one production unit of crop c,
c
.

t
=

cit
y
cit
a
cit

i
y
cit
a
cit

c
=

cit

cit

cit
=
y
cit
a
cit

i
y
cit
a
cit

c
Here we show that
t
is exogenous despite the endogeneity of
cit
, given:
(i) E[
cit
] = 0, which is true by construction of the shocks
(ii)
cit
is exogenous, which is otherwise assumed and defended in the text
(iii)
cit
is independent of the weight
cit
, which may be a stronger assumption, but follows
if yield shocks follow from weather experienced after planting decisions are made.
Assumption (iii) is testable: when we regress country-and-crop specic weights
cit
on
the shocks
cit
, the p-value is never below 0.69 regardless whether we use FAO or FAS
data and whether we include country-by-crop specic xed eects or not.
A valid instruments requires that u
t
is orthogonal to
t
, or COV (u
t
,
t
) = 0. We have
COV (u
t
,
t
) = COV
_
u
t
,

cit

cit
_
= E
_
u
t

cit

cit
_
E[u
t
]
. .
=0
E
_

cit

cit
_
= E
_

cit
_
E
_

i
u
t

cit
_
= 0
A1
The second line uses the denition of the covariance, the third line use the fact that
cit
is
exogenous (orthogonal to u
t
) and independent of
cit
. Finally, the fourth line uses E[
cit
] = 0.
A1.2 Price Eect in Muti-crop System
In the main paper we estimate the eect of new biofuel demand on price using a model that
aggregates the four major food commodities based on caloric content. Here we present the
algebra for modeling price eects on n commodities. Denote the log demand for commodity
i by q
i
, the log price by p
i
, and the elasticity of demand for commodity i with respect to
price of commodity j as
d,ij
. We have:
_

_
q
1
q
2
.
.
.
q
n
_

_
. .
q
=
_

d,1

d,2
.
.
.

d,n
_

_
. .

d
+
_

d,11

d,12
. . .
d,1n

d,21

d,22
. . .
d,2n
.
.
.
.
.
.
.
.
.
.
.
.

d,n1

d,n2
. . .
d,nn
_

_
. .

d
_

_
p
1
p
2
.
.
.
p
n
_

_
. .
p
=
d
+
d
p
Similar, the supply system is given by:
_

_
q
1
q
2
.
.
.
q
n
_

_
. .
q
=
_

s,1

s,2
.
.
.

s,n
_

_
. .
s
+
_

s,11

s,12
. . .
s,1n

s,21

s,22
. . .
s,2n
.
.
.
.
.
.
.
.
.
.
.
.

s,n1

s,n2
. . .
s,nn
_

_
. .

s
_

_
p
1
p
2
.
.
.
p
n
_

_
. .
p
=
s
+
s
p
The equilibrium is given by equating demand and supply

d
+
d
p =
s
+
s
p [
d

s
] = [
s

d
] p
And hence the equilibrium prices are
p = [
s

d
]
1
[
d

s
]
If biofuels shift out the demand by
d,1
for commodity 1, the resulting eect on equilibrium
prices is
p = [
s

d
]
1
[
d,1
0 . . . 0]

A2
Note that all prices adjust, even though the demand for only one commodity increases
because the prices are linked through cross-price elasticities. Uncertainty of the estimate
is derived by drawing one million random draws from the estimated joint distribution of
the
d,ij
and
s,ij
, inverting the matrix [
s

d
]
1
, and derive the predicted price increase
[
s

d
]
1
[
d,1
0 . . . 0]

for each commodity on each draw.


If there is just one commodity, this simplies to the baseline case: p =

d,1

s,11

d,11
.
A2 Data Appendix
A2.1 Agricultural Production Data
Yield data for the four staple commodities, maize, rice, soybeans, and wheat, were obtained
from two data sources. The baseline model uses data from the Food and Agriculture Or-
ganization (FAO) of the United Nations (http://faostat.fao.org/) for the years 1961-2010.
The data include production, area harvested, yields (ratio of total production divided by
area harvested), and stock variation (change in inventories) for each of the four key crops.
Production and area are assigned to the calendar year given by FAO. Demand is annual
production plus the change in inventory, which is given by the negative of the Stock Varia-
tion variable in the FAO data. The last variable is only available until 2007, so the baseline
regression uses data for the 47 years from 1961 to 2007. Since most regressions include one
lag of yield shocks, those using FAO data generally have 46 observations.
In a sensitivity check, we use data from the Foreign Agricultural Service (FAS) by the
United States Department of Agriculture (http://http://www.fas.usda.gov/) that has data
for 1961-2010 for all variables, including stocks. FAS reports production for marketing years,
i.e., the 12-month period between the last harvest and the next harvest, when the amount
produced is being sold. To be consistent with the FAO data, we assign production data to
calendar years based on the year when the marketing year starts. We adjust the year for
Argentina maize and Romanian soybeans, as they seem to be o by one year. Consumption
quantities are set equal to production plus the inventory levels at the beginning of the
marketing year minus inventory levels at the end of the marketing year, which are given in
the data.
The FAS data does not provide production data for soybeans before 1964, so we manu-
ally ll in production numbers from USDA. Soybeans were a small share of overall calorie
production at that time, and the US produced a dominant share of global production, so the
omitted countries should have little inuence. The FAS data does not give an estimate for
A3
the world total. Instead we simply sum the numbers for all countries in the data to get the
total production of all major producers. Since the FAS data does exclude countries that are
not major producers, consumption estimates tend to be smaller than production estimates.
We model yields in each country that on average account for at least 0.5% of global
production and sum the remaining countries as Rest of the World. Countries that produce
at least 0.5% of any of the four commodities are given in Tables A1 and A2. The geographic
location of these countries is shown in the bottom panels of Figures A1-A4. Individual yield
observations in our baseline model using FAO data as well as time trends using restricted
cubic spline with 3 knots are shown in Figures A5-A7.
A1
The knots are 1963, 1984, and
2005. Regressions with 4 spline knots use the knots 1962, 1976, 1992, and 2006. Regressions
with 5 spline knots use the knots 1962, 1973, 1984, 1995, and 2006.
Figure A8 shows the correlation of annual yield shocks of the two biggest exporters for
each of the four commodities. The two largest exporters are engaged in the world market
and farmers should respond to changes in world prices. If yields are endogenous to price,
yield shocks between the two largest producers should be correlated as they both respond
to the same price shock. However, the gure shows little correlation between the shocks.
A2.2 Weather Data
Weather data from Center for Climatic Research at the University of Delaware (version
2.01) gives monthly temperature and precipitation readings on a 0.5 degree grid for the
entire world for the years 1901-2008.
A2
Weather outcomes for a particular crop in a country
are the area-weighted average of all grids that fall in a country over the growing season.
The crop-specic area weights from Chad Monfreda, Navin Ramankutty & Jonathan A.
Foley (2008) are displayed in the top panels of Appendix Figures A1-A4. The authors provide
the fraction of each 5 minute grid cell that is used for various crops.
A3
Fraction greater than
1 indicate double cropping.
The growing season for each crop and country was obtained from W. J. Sacks, D. Deryng,
J.A. Foley & N. Ramankutty (2010). The authors provide planting and harvest dates on a 5
minute grid.
A4
We include the entire months between planting and harvest. For example, if
average planting is on April 8th and harvest on September 12th, we use weather data from
A1
We use STATAs command mkspline to obtain restricted cubic splines with three knots. This gives two
variables, which captures a trend in a more exible way than using a quadratic time trend.
A2
http://climate.geog.udel.edu/climate/
A3
http://www.geog.mcgill.ca/landuse/pub/Data/175crops2000/NetCDF/ (accessed November 2008).
A4
http://www.sage.wisc.edu/download/sacks/crop calendar.html (accessed January 2010).
A4
April through September.
A2.3 Price Data
Our baseline model uses futures prices during the month of delivery (December for maize
and wheat and November for rice and soybeans) in the demand equation and futures prices
as they are traded in the previous December in the supply equation. Prices are converted
into dollars per calorie by using the conversion ratios of Williamson & Williamson (1942)
that list the edible amount of calories in each production unit.
Since futures data are only available since 1960s, Figure 2, which shows a longer history
of prices converted to the real annual cost of a 2000 calories/day, uses annual prices received
by farmers as reported by the National Agricultural Statistics Service.
A5
Food commodity
prices have declined over the long run, except for price spikes during World War II, in the
1970s, and the recent run-up. Despite the recent run-up, prices are still low relative to most
of history. The top panel of Figure A9 replicates this time series for the time frame of our
analysis 1961-2010.
The bottom panel of Figure A9 no longer uses the conversion ratios of Williamson &
Williamson (1942), but backs them out implicitly by assuming the average price of a calorie
is the same for all crops. This calibration tracks relative changes in prices over time. In
eect, the bottom panel shows each price series multiplied by a constant such that the
average prices of rice, soybeans and wheat in 1961-2010 equal that of maize.
A2.4 Ethanol Production
Renewable fuel standards and ethanol tax credits have led to a rapid expansion of the US
ethanol production capacity as shown in the top panel of Figure A10. As a result, the United
States produces far more than 50% of the global production capacity in 2010, followed by
South America (primarily Brazil), which accounted for roughly one-third. Production shares
are shown in the botttom panel of Figure A10.
A5
www.nass.usda.gov
A5
Table A1: Countries Used to Derive Maize and Soybean Yield Shocks
Data from FAO Data from FAS
Production Share Years in Data Production Share Years in Data
Country Avg Min Max N Min Max Avg Min Max N Min Max
Panel A: Maize Yields
United States of America 41.76 30.55 48.11 50 1961 2010 45.09 32.98 50.50 50 1961 2010
China 15.96 7.95 21.72 50 1961 2010 17.03 9.77 23.56 50 1961 2010
Brazil 5.29 3.45 7.49 50 1961 2010 5.71 3.66 7.79 50 1961 2010
USSR 3.52 1.98 8.35 31 1961 1991 3.96 2.11 8.66 26 1961 1986
Mexico 3.00 2.02 3.94 50 1961 2010 3.06 1.66 4.41 50 1961 2010
Yugoslav SFR 2.47 1.39 3.25 31 1961 1991 2.65 1.48 3.46 31 1961 1991
Argentina 2.35 1.03 3.52 50 1961 2010 2.53 1.11 3.78 50 1961 2010
France 2.29 0.91 3.65 50 1961 2010 . . . . . .
Romania 2.08 0.49 3.29 50 1961 2010 2.61 1.37 3.73 38 1961 1998
South Africa 1.98 0.61 3.62 50 1961 2010 2.12 0.66 3.88 50 1961 2010
India 1.93 1.26 2.82 50 1961 2010 2.09 1.35 3.02 50 1961 2010
Italy 1.51 0.96 1.93 50 1961 2010 . . . . . .
Hungary 1.37 0.51 2.10 50 1961 2010 1.57 0.80 2.19 38 1961 1998
Indonesia 1.31 0.72 2.17 50 1961 2010 1.14 0.76 1.79 49 1961 2010
Canada 1.16 0.36 1.71 50 1961 2010 1.23 0.38 1.84 50 1961 2010
Serbia And Montenegro 0.89 0.50 1.19 14 1992 2005 0.95 0.55 1.20 14 1992 2005
Egypt 0.89 0.70 1.09 50 1961 2010 0.95 0.78 1.16 49 1961 2010
Ukraine 0.80 0.27 1.42 19 1992 2010 1.03 0.29 2.34 24 1987 2010
Philippines 0.77 0.59 1.10 50 1961 2010 0.83 0.61 1.23 50 1961 2010
Thailand 0.67 0.29 1.16 50 1961 2010 0.71 0.30 1.23 50 1961 2010
Nigeria 0.65 0.12 1.34 50 1961 2010 0.71 0.32 1.44 50 1961 2010
Spain 0.58 0.34 0.89 50 1961 2010 . . . . . .
North Korea 0.52 0.14 0.89 50 1961 2010 . . . . . .
Bulgaria 0.50 0.04 0.96 50 1961 2010 0.64 0.18 1.03 38 1961 1998
Kenya . . . . . . 0.53 0.28 0.78 50 1961 2010
Rest Of World 9.09 6.95 12.04 50 1961 2010 8.22 6.30 11.64 50 1961 2010
Panel B: Soybeans Yields
United States of America 55.55 33.17 73.48 50 1961 2010 58.22 32.88 100.00 50 1961 2010
Brazil 15.11 1.01 27.23 50 1961 2010 17.29 1.59 29.59 46 1965 2010
China 12.63 5.77 27.26 50 1961 2010 11.83 5.64 27.47 47 1964 2010
Argentina 7.31 0.00 21.61 50 1961 2010 8.05 0.05 22.03 46 1965 2010
India 1.79 0.02 4.99 50 1961 2010 1.89 0.03 4.27 42 1969 2010
Paraguay 1.09 0.01 2.85 50 1961 2010 1.11 0.03 2.75 46 1965 2010
Canada 1.07 0.44 1.90 50 1961 2010 1.09 0.44 1.85 47 1964 2010
USSR 0.94 0.46 1.75 31 1961 1991 0.89 0.48 1.61 23 1964 1986
Indonesia 0.94 0.27 1.63 50 1961 2010 0.91 0.24 1.65 47 1964 2010
Italy . . . . . . 0.76 0.01 1.69 10 1981 1990
Rest Of World 3.93 2.52 6.72 50 1961 2010 3.25 0.01 5.84 48 1963 2010
Notes: Tables displays countries used to derive yield deviations, sorted from largest producer to smallest producer. The rst
six columns summarize the data from FAO, the last six columns from FAS. Within each data set, the rst three give average,
minimum, and maximum annual share of global production, respectively, while the last three give the number of years for
which we have data as well as the rst and last year, respectively.
A6
Table A2: Countries Used to Derive Wheat and Rice Yield Shocks
Data from FAO Data from FAS
Production Share Years in Data Production Share Years in Data
Country Avg Min Max N Min Max Avg Min Max N Min Max
Panel A: Wheat Yields
USSR 21.23 12.68 31.10 31 1961 1991 26.54 15.35 35.94 26 1961 1986
China 14.23 6.43 20.10 50 1961 2010 17.25 7.71 24.52 50 1961 2010
United States of America 11.91 7.60 16.86 50 1961 2010 14.52 10.00 19.90 50 1961 2010
India 8.73 3.42 13.04 50 1961 2010 10.58 4.01 16.92 50 1961 2010
Russian Federation 7.07 4.55 9.33 19 1992 2010 8.96 5.54 11.99 24 1987 2010
France 5.35 3.72 6.78 50 1961 2010 . . . . . .
Canada 4.75 2.78 8.44 50 1961 2010 5.80 3.46 10.25 50 1961 2010
Turkey 3.44 2.60 4.37 50 1961 2010 3.42 2.56 4.12 50 1961 2010
Australia 3.14 1.70 4.67 50 1961 2010 3.84 2.03 5.87 50 1961 2010
Germany 2.94 1.99 4.02 50 1961 2010 . . . . . .
Ukraine 2.76 0.64 3.87 19 1992 2010 3.85 0.81 6.12 24 1987 2010
Pakistan 2.54 1.29 3.80 50 1961 2010 3.09 1.51 4.74 50 1961 2010
Argentina 2.20 1.25 4.19 50 1961 2010 2.70 1.74 5.10 50 1961 2010
United Kingdom 2.02 1.06 2.92 50 1961 2010 . . . . . .
Italy 2.00 0.92 3.79 50 1961 2010 . . . . . .
Kazakhstan 1.88 0.80 3.23 19 1992 2010 2.44 0.96 3.85 24 1987 2010
Iran 1.56 0.98 2.59 50 1961 2010 1.89 1.14 3.23 50 1961 2010
Poland 1.38 0.93 1.79 50 1961 2010 1.62 1.10 2.16 38 1961 1998
Yugoslav SFR 1.29 0.90 1.78 31 1961 1991 1.55 1.08 2.16 31 1961 1991
Romania 1.25 0.44 2.25 50 1961 2010 1.64 0.64 2.79 38 1961 1998
Spain 1.14 0.58 2.09 50 1961 2010 . . . . . .
Czechoslovakia 1.05 0.66 1.41 32 1961 1992 1.25 0.81 1.71 31 1961 1991
Hungary 0.96 0.45 1.44 50 1961 2010 1.24 0.64 1.76 38 1961 1998
Bulgaria 0.76 0.31 1.11 50 1961 2010 1.00 0.37 1.37 38 1961 1998
Egypt 0.73 0.35 1.37 50 1961 2010 0.90 0.43 1.76 49 1961 2010
Uzbekistan 0.68 0.16 1.03 19 1992 2010 0.69 0.08 1.26 24 1987 2010
Mexico 0.67 0.37 1.04 50 1961 2010 0.77 0.50 1.06 50 1961 2010
Czech Republic 0.66 0.47 0.80 18 1993 2010 . . . . . .
Afghanistan 0.57 0.25 1.02 50 1961 2010 0.70 0.33 1.23 50 1961 2010
Brazil 0.56 0.17 1.21 50 1961 2010 0.64 0.05 1.45 50 1961 2010
Morocco 0.56 0.20 1.05 50 1961 2010 0.66 0.23 1.34 50 1961 2010
Serbia And Montenegro . . . . . . 0.51 0.31 0.74 14 1992 2005
Syria . . . . . . 0.56 0.19 1.10 50 1961 2010
Rest Of World 7.04 4.67 9.83 50 1961 2010 4.94 2.86 6.96 50 1961 2010
Panel B: Rice Yields
China 34.08 26.07 39.13 50 1961 2010 34.74 25.61 39.66 50 1961 2010
India 20.59 16.77 24.81 50 1961 2010 20.59 16.52 24.33 50 1961 2010
Indonesia 7.61 4.68 9.88 50 1961 2010 7.64 5.35 9.03 50 1961 2010
Bangladesh 5.56 4.66 7.34 50 1961 2010 5.58 4.63 7.40 50 1961 2010
Thailand 4.33 3.32 5.17 50 1961 2010 4.15 3.27 4.70 50 1961 2010
Vietnam 4.08 2.54 6.03 50 1961 2010 4.03 2.50 5.86 50 1961 2010
Japan 3.55 1.55 7.49 50 1961 2010 3.83 1.72 7.71 50 1961 2010
Myanmar 3.23 2.39 4.94 50 1961 2010 2.50 2.12 3.11 50 1961 2010
Brazil 2.06 1.33 2.98 50 1961 2010 2.07 1.47 2.87 49 1961 2010
Philippines 1.90 1.48 2.47 50 1961 2010 1.84 1.36 2.43 50 1961 2010
South Korea 1.55 0.86 2.26 50 1961 2010 1.68 0.96 2.41 50 1961 2010
United States of America 1.44 1.01 2.02 50 1961 2010 1.52 1.05 2.16 50 1961 2010
Pakistan 1.09 0.72 1.51 50 1961 2010 1.08 0.71 1.54 50 1961 2010
Egypt 0.76 0.44 1.07 50 1961 2010 0.75 0.41 1.14 50 1961 2010
Nepal 0.68 0.43 0.98 50 1961 2010 0.69 0.44 0.96 49 1961 2010
Cambodia 0.65 0.14 1.23 50 1961 2010 0.63 0.13 1.18 50 1961 2010
North Korea 0.58 0.25 0.90 50 1961 2010 0.59 0.31 0.77 50 1961 2010
Madagascar 0.53 0.41 0.71 50 1961 2010 0.50 0.40 0.68 50 1961 2010
Taiwan . . . . . . 0.70 0.22 1.34 49 1961 2010
Rest Of World 5.74 4.54 7.16 50 1961 2010 4.98 3.87 6.42 50 1961 2010
Notes: Table displays countries used to derive yield deviations, sorted from largest producer to smallest producer. The rst
six columns summarize the data from FAO, the last six columns from FAS. Within each data set, the rst three give average,
minimum, and maximum annual share of global production, respectively; the last three give the number of years for which we
have data as well as the rst and last available year.
A7
Figure A1: Maize Growing Area and Countries in Study
Notes: Top panel displays the fraction of each grid cell in Monfreda, Ramankutty & Foley (2008) used to
grow maize (note the nonlinear scale on the right). Numbers greater than 1 indicate double cropping. The
bottom panel displays countries that on average produce at least 0.5% of global production. Colors indicate
whether this is the case in both the FAO and FAS data (red), only the FAS data (orange), or only the FAO
data (yellow).
A8
Figure A2: Rice Growing Area and Countries in Study
Notes: Top panel displays the fraction of each grid cell in Monfreda, Ramankutty & Foley (2008) used to
grow rice (note the nonlinear scale on the right). Numbers greater than 1 indicate double cropping. The
bottom panel displays countries that on average produce at least 0.5% of global production. Colors indicate
whether this is the case in both the FAO and FAS data (red), only the FAS data (orange), or only the FAO
data (yellow).
A9
Figure A3: Soybeans Growing Area and Countries in Study
Notes: Top panel displays the fraction of each grid cell in Monfreda, Ramankutty & Foley (2008) used to
grow soybeans (note the nonlinear scale on the right). Numbers greater than 1 indicate double cropping.
The bottom panel displays countries that on average produce at least 0.5% of global production. Colors
indicate whether this is the case in both the FAO and FAS data (red), only the FAS data (orange), or only
the FAO data (yellow).
A10
Figure A4: Wheat Growing Area and Countries in Study
Notes: Top panel displays the fraction of each grid cell in Monfreda, Ramankutty & Foley (2008) used to
grow wheat (note the nonlinear scale on the right). Numbers greater than 1 indicate double cropping. The
bottom panel displays countries that on average produce at least 0.5% of global production. Colors indicate
whether this is the case in both the FAO and FAS data (red), only the FAS data (orange), or only the FAO
data (yellow).
A11
Figure A5: Country-Level Yields and Yield Trends for Maize and Soybeans
Panel A: Maize Yields
1
.4
1
.6
1
.8
2
2
.2
2
.4
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
United States of America
0
.5
1
1
.5
2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
China
0
.2
.4
.6
.8
1
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Rest Of World (FAO)
0
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Brazil
.4
.6
.8
1
1
.2
1
.4
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
USSR
0
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Mexico
.6
.8
1
1
.2
1
.4
1
.6
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Yugoslav SFR
.5
1
1
.5
2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Argentina
.5
1
1
.5
2
2
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
France
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Romania

.5
0
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
South Africa

.2
0
.2
.4
.6
.8
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
India
1
1
.5
2
2
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Italy
.5
1
1
.5
2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Hungary

.5
0
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Indonesia
1
.4
1
.6
1
.8
2
2
.2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Canada
.8
1
1
.2
1
.4
1
.6
1
.8
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Serbia And Montenegro
1
1
.5
2
2
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Egypt
.8
1
1
.2
1
.4
1
.6
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Ukraine

.5
0
.5
1
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Philippines
0
.5
1
1
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Thailand

.5
0
.5
1
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Nigeria
.5
1
1
.5
2
2
.5
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Spain
0
.5
1
1
.5
2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
North Korea
.5
1
1
.5
2
L
o
g
M
a
iz
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Bulgaria
Panel B: Soybean Yields
.4
.6
.8
1
1
.2
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
United States of America

.5
0
.5
1
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Brazil

.4

.2
0
.2
.4
.6
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
China
0
.2
.4
.6
.8
1
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Argentina

.4

.2
0
.2
.4
.6
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Rest Of World (FAO)

.8

.6

.4

.2
0
.2
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
India
.2
.4
.6
.8
1
1
.2
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Paraguay
.4
.6
.8
1
1
.2
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Canada

1
.5

.5
0
.5
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
USSR

.4

.2
0
.2
.4
L
o
g
S
o
y
b
e
a
n
s
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Indonesia
Notes: Figure displays yields in FAO data as well as trends (restricted cubic spline with 3 knots). Countries
are sorted from largest producer to smallest producer.
A12
Figure A6: Country-Level Yields and Yield Trends for Rice
.5
1
1
.5
2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
China
.2
.4
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
India
.5
1
1
.5
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Indonesia
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Rest Of World (FAO)
.4
.6
.8
1
1
.2
1
.4
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Bangladesh
.4
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Thailand
.5
1
1
.5
2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Vietnam
1
.5
1
.6
1
.7
1
.8
1
.9
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Japan
.4
.6
.8
1
1
.2
1
.4
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Myanmar
0
.5
1
1
.5
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Brazil
0
.5
1
1
.5
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Philippines
1
.2
1
.4
1
.6
1
.8
2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
South Korea
1
.4
1
.6
1
.8
2
2
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
United States of America
.4
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Pakistan
1
.6
1
.8
2
2
.2
2
.4
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Egypt
.4
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Nepal

.5
0
.5
1
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Cambodia
1
1
.5
2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
North Korea
.4
.6
.8
1
1
.2
L
o
g
R
ic
e
Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Madagascar
Notes: Figure displays yields in FAO data as well as trends (restricted cubic spline with 3 knots). Countries
are sorted from largest producer to smallest producer.
A13
Figure A7: Country-Level Yields and Yield Trends for Wheat

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
USSR

.5
0
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
China
.4
.6
.8
1
1
.2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
United States of America

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
India
.2
.4
.6
.8
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Russian Federation
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Rest Of World (FAO)
1
1
.5
2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
France

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Canada
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Turkey

.2
0
.2
.4
.6
.8
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Australia
1
1
.5
2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Germany
.4
.6
.8
1
1
.2
1
.4
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Ukraine

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Pakistan
0
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Argentina
1
.2
1
.4
1
.6
1
.8
2
2
.2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
United Kingdom
.6
.8
1
1
.2
1
.4
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Italy

.6

.4

.2
0
.2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Kazakhstan

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Iran
.6
.8
1
1
.2
1
.4
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Poland
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Yugoslav SFR
.2
.4
.6
.8
1
1
.2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Romania
0
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Spain
.8
1
1
.2
1
.4
1
.6
1
.8
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Czechoslovakia
.5
1
1
.5
2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Hungary
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Bulgaria
.5
1
1
.5
2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Egypt
0
.5
1
1
.5
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Uzbekistan
.5
1
1
.5
2
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Mexico
1
.4
1
.5
1
.6
1
.7
1
.8
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Czech Republic

.4

.2
0
.2
.4
.6
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Afghanistan

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Brazil

.5
0
.5
1
L
o
g
W
h
e
a
t Y
ie
ld
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Morocco
Notes: Figure displays yields in FAO data as well as trends (restricted cubic spline with 3 knots). Countries
are sorted from largest producer to smallest producer.
A14
Figure A8: Correlation of Shocks of Two Biggest Exporters (FAO Data)

.
4

.
2
0
.
2
.
4
L
o
g

Y
i
e
l
d

R
e
s
i
d
u
a
l
s

(
A
r
g
e
n
t
i
n
a
)
.3 .2 .1 0 .1 .2
Log Yield Residuals (United States of America)
Maize

.
1
5

.
1

.
0
5
0
.
0
5
.
1
L
o
g

Y
i
e
l
d

R
e
s
i
d
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a
l
s

(
U
n
i
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e
d

S
t
a
t
e
s

o
f

A
m
e
r
i
c
a
)
.2 .1 0 .1
Log Yield Residuals (Thailand)
Rice

.
3

.
2

.
1
0
.
1
.
2
L
o
g

Y
i
e
l
d

R
e
s
i
d
u
a
l
s

(
B
r
a
z
i
l
)
.2 .1 0 .1 .2
Log Yield Residuals (United States of America)
Soybeans

.
6

.
4

.
2
0
.
2
.
4
L
o
g

Y
i
e
l
d

R
e
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d
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a
l
s

(
A
u
s
t
r
a
l
i
a
)
.2 .1 0 .1 .2
Log Yield Residuals (United States of America)
Wheat
Notes: Figure shows scatter plots of log yield residuals (deviations from the trend, which is modeled using
restricted cubic splines with 3 knots) of the two largest exporters of each crop in 1961-2010. The correlation
coecients are 0.002 for maize, 0.40 for rice, -0.16 for soybeans, and 0.19 for wheat. For wheat, the second
largest exporter is Canada, but since the growing area is adjacent to the United States, the largest exporter,
we instead use the third largest exporter (Australia).
A15
Figure A9: Commodity Prices
0
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
P
r
i
c
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0

C
a
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o
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P
e
r

D
a
y

(
$
2
0
1
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/
p
e
r
s
o
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/
y
e
a
r
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Maize Wheat Rice Soybeans
0
5
0
1
0
0
1
5
0
2
0
0
P
r
i
c
e

o
f

2
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0

C
a
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(
$
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/
p
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r
s
o
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/
y
e
a
r
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Maize Wheat Rice Soybeans
Notes: Figure displays caloric prices over time for maize, wheat, rice, and soybeans in the years 1961-2010.
The y-axis are the annual cost for 2000 calories per day. The bottom panel rescales prices by a constant so
the average price in 1961-2010 is the same as for maize.
A16
Figure A10: US Ethanol Production Capacity Over Time and as Share of World Capacity
0
2
4
6
8
1
0
1
2
1
4
U
S

E
t
h
a
n
o
l

P
r
o
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t
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o
n

(
b
i
l
l
i
o
n

g
a
l
l
o
n
s
)
1980 1985 1990 1995 2000 2005 2010
Year
11.31%
31.04%
57.65%
United States South America Rest of World
Notes: Top panel shows ethanol production capacity in billion gallons 1980-2011. The bottom panel shows
the US share of global capacity in 2010, South America, and the rest of the world. Data is taken from:
http://www.ethanolrfa.org/pages/statistics
A17
A3 FAO Data - Additional Results
This section presents additional results that were omitted from the main paper due to space
constraints.
Table A3 weighs crop and country-specic shocks by predicted area (using the same
restricted cubic spline with 3 knots in a regression of log area, i.e., using the same setup that
was used to derive predicted yield), but the results remain robust.
Table A4 presents the coecients on US yield shocks as well as yield shocks for the
rest of the world. Table 5 in the main paper listed the elasticities as well as test results
whether the coecients on the instruments are equal, but not the coecients themselves.
Note that the coecients are close in magnitude: a shock outside the US moves futures
prices by a similar amount as shocks in the US. We normalize shocks by the fraction of
global production (according to predicted yields) to make the shocks comparable: Since the
US produces around 23% of global calories, the US shock is multiplied by roughly 0.23, while
the shock on the rest of the world is multiplied by 0.77. To get the eect of 1% shock in the
US on world prices, one simply has to divide the rst-stage parameter by roughly one-fourth.
The rst-stage instrument in the supply equation is around -4, which implies that a negative
1% yield shock in the US increase global commodity prices in the next period by 1%. The
coecient in the demand equation is slightly larger in magnitude (around -5), suggesting
that a negative 1% yield shock in the US increase global commodity prices in the current
period by 1.25%.
Similarly, Table A5 splits overall shocks, our instrument, into each of the four commodi-
ties. The coecients on the dierent instruments are not signicantly dierent except when
we use 3 spline knots as the time trend in the IV regression (column 1a) or 3SLS regres-
sion (column 2a). Since we are using one combined price (production-weighted average of
maize, soybeans, and wheat, where we use predicted yields along the trend), this regression
should be interpreted with caution as the weighted price basket will be related to all four
commodity shocks even if they only impact the price of one crop.
Table A6 replicates Table 7 of the main paper but shows results not only for time trends
that are modeled as restricted cubic splines with 4 knots but also 5 knots.
Table A7 estimates a 4x4 system using FAO data similar to Table 8 in the main paper
that uses FAS data.
A18
Table A3: Supply and Demand Elasticity: Weighting Yield Schocks by Predicted Growing
Area (FAO Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast.
s
0.107

0.102

0.092

0.122

0.119

0.102

(0.026) (0.027) (0.020) (0.019) (0.020) (0.018)


Shock
t
1.178

1.216

1.202

1.237

1.266

1.232

(0.147) (0.145) (0.102) (0.107) (0.099) (0.086)


First Stage
t1
-3.748

-3.519

-3.740

-3.453

-3.054

-3.165

(1.162) (0.945) (0.903) (0.782) (0.683) (0.713)


First Stage
t
-2.801

-2.211

-2.326

-2.788

-2.283

-2.380

(1.633) (1.283) (1.260) (0.956) (0.804) (0.806)


Panel B: Demand Equation
Demand Elast.
d
-0.028 -0.054

-0.054

-0.033 -0.058

-0.063

(0.021) (0.023) (0.021) (0.024) (0.022) (0.020)


First Stage
t
-5.362

-4.533

-4.674

-5.219

-4.406

-4.345

(1.487) (1.271) (1.205) (1.364) (1.190) (1.168)


Panel C: Eect of Demand Shift
Multiplier
1

d
7.41 6.41 6.87 6.49 5.65 6.07
Exp. Multiplier 8.01 6.83 7.18 6.73 5.81 6.24
(95% Conf. Int.) (5.0,14.4) (4.4,11.7) (4.9,11.3) (4.8,10.1) (4.3,8.3) (4.6,8.9)
F
1st-stage
Supply 10.41 13.86 17.15
F
1st-stage
Demand 13.01 12.73 15.06
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except that log yield residuals are not averaged using actual area but area
as given by a restricted cubic spline with 3 knots (same trend used in the derivation of the yield shocks).
Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars
indicate signicance levels:

: 1%;

: 5%;

: 10%.
A19
Table A4: Supply and Demand Elasticity - Separating Shocks in US from Rest of World
(FAO Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast.
s
0.107

0.089

0.083

0.112

0.105

0.091

(0.022) (0.025) (0.020) (0.019) (0.020) (0.018)


Shock
t,US
1.481

1.383

1.374

1.342

1.429

1.396

(0.145) (0.167) (0.130) (0.111) (0.123) (0.108)


Shock
t,RW
0.922

1.007

0.995

0.973

1.040

1.018

(0.155) (0.133) (0.105) (0.143) (0.132) (0.119)


First Stage
t1,US
-2.619

-4.218

-4.086

-3.163

-3.660

-3.610

(1.244) (1.107) (1.064) (1.159) (1.062) (1.084)


First Stage
t1,RW
-4.935

-3.033

-3.551

-3.570

-2.544

-2.753

(1.610) (1.587) (1.498) (1.171) (1.098) (1.133)


First Stage
t,US
-1.157 -2.751 -2.549 -1.629 -2.770

-2.659

(2.518) (2.239) (2.223) (1.355) (1.207) (1.218)


First Stage
t,RW
-4.234

-1.918 -2.258

-4.346

-2.025 -2.386

(1.513) (1.235) (1.240) (1.331) (1.260) (1.259)


Panel B: Demand Equation
Demand Elast.
d
-0.021 -0.053

-0.053

0.003 -0.049

-0.051

(0.020) (0.022) (0.021) (0.017) (0.019) (0.017)


First Stage
t,US
-4.696

-5.855

-5.871

-5.517

-5.787

-5.741

(1.915) (1.460) (1.366) (1.939) (1.625) (1.569)


First Stage
t,RW
-6.438

-3.248

-3.498

-6.305

-3.707

-3.897

(1.821) (1.896) (1.879) (1.952) (1.658) (1.558)


Panel C: Eect of Demand Shift
Multiplier
1

d
7.84 7.07 7.39 9.14 6.50 7.05
Exp. Mult. (s.e.) 8.35 7.44 7.78 9.62 6.71 7.28
(95% Conf. Int.) (5.3,14.7) (4.8,13.3) (5.2,12.6) (6.5,15.5) (4.9,9.8) (5.3,10.6)
Panel D: P-value on Equal Coecients
S
1st-stage

t1
equal 0.20 0.56 0.77 0.81 0.50 0.61
D
1st-stage

t
equal 0.42 0.24 0.27 0.77 0.36 0.38
F
1st-stage
Supply 5.74 9.73 10.19
F
1st-stage
Demand 7.17 8.57 9.92
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Table list all coecient estimates of Table 5 in the main paper. Columns (a), (b), and (c) include
restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A20
Table A5: Supply and Demand Elasticity - Separating Shocks of Four Crops (FAO Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast. s 0.113

0.099

0.086

0.118

0.109

0.094

(0.023) (0.023) (0.017) (0.020) (0.020) (0.018)


Shock
t,M
1.787

1.685

1.539

1.541

1.686

1.542

(0.188) (0.192) (0.158) (0.162) (0.167) (0.158)


Shock
t,R
1.022

1.415

0.996

1.130

1.454

1.042

(0.348) (0.321) (0.286) (0.285) (0.284) (0.273)


Shock
t,S
-0.210 -0.060 0.702 0.308 0.027 0.721
(0.724) (0.640) (0.569) (0.543) (0.545) (0.557)
Shock
t,W
0.982

0.934

0.976

0.990

0.991

1.012

(0.173) (0.156) (0.151) (0.179) (0.176) (0.163)


First Stage
t1,M
-0.831 -1.834 -0.617 0.205 -0.125 0.232
(1.527) (1.475) (1.530) (1.502) (1.497) (1.637)
First Stage
t1,R
-6.933

-4.790 -4.605 -4.411

-2.517 -2.845
(3.420) (3.601) (3.846) (2.560) (2.630) (2.630)
First Stage
t1,S
-10.736

-7.811 -12.694

-10.104

-8.342 -10.037

(5.144) (5.176) (6.072) (5.236) (5.137) (5.895)


First Stage
t1,W
-3.963

-3.963

-5.112

-4.397

-4.563

-5.142

(1.909) (1.817) (1.612) (1.385) (1.303) (1.430)


First Stage
t,M
0.036 -0.702 0.253 1.406 -0.557 0.420
(2.179) (2.431) (2.347) (1.737) (1.757) (1.799)
First Stage
t,R
-7.072 -4.633 -3.812 -8.486

-5.447

-4.218
(4.282) (4.085) (4.203) (2.613) (2.919) (2.962)
First Stage
t,S
-3.799 -1.761 -6.580 -5.725 -1.177 -5.796
(6.328) (6.396) (8.848) (5.574) (5.611) (6.263)
First Stage
t,W
-3.752

-3.782

-4.802

-4.459

-4.636

-5.465

(1.499) (1.339) (1.711) (1.664) (1.630) (1.699)


Panel B: Demand Equation
Demand Elast.
d
0.000 -0.062

-0.056

0.009 -0.067

-0.061

(0.019) (0.024) (0.021) (0.015) (0.019) (0.017)


First Stage
t,M
-4.506

-6.910

-6.763

-5.098

-7.601

-7.063

(2.054) (2.475) (2.824) (2.757) (2.259) (2.328)


First Stage
t,R
-14.164

-5.859 -5.822 -14.012

-7.823

-5.706
(3.042) (4.141) (4.439) (3.483) (3.345) (3.498)
First Stage
t,S
-5.574 0.661 0.098 -4.367 8.889 4.427
(8.268) (9.669) (12.006) (9.177) (6.742) (7.585)
First Stage
t,W
-3.559 -2.768 -3.069 -3.601 -2.166 -2.954
(2.613) (2.457) (2.247) (2.498) (1.835) (1.903)
Panel C: Eect of Demand Shift
Multiplier
1

d
8.88 6.21 7.05 9.23 5.66 6.45
Exp. Mult. (s.e.) 9.71 6.51 7.33 9.74 5.80 6.62
(95% Conf. Int.) (5.9,18.4) (4.4,10.4) (5.1,11.2) (6.5,15.9) (4.4,8.0) (5.0,9.3)
Panel D: P-value on Equal Coecients
S
1st-stage

t1
equal 0.16 0.70 0.20 0.10 0.25 0.19
D
1st-stage
t equal 0.01 0.70 0.77 0.08 0.10 0.59
F
1st-stage
Supply 4.44 4.56 5.79
F
1st-stage
Demand 7.75 4.69 4.76
Observations 46 46 46 46 46 46
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except that it includes separate shocks for each of the four crops: maize (M),
rice (R), soybeans (S), and wheat (W). Shocks are normalized by the predicted fraction of global production
to make them comparable. Panel D presents p-values from tests whether the coecients on the shocks used
as instruments are jointly the same. Columns (a), (b), and (c) include restricted cubic splines in time with
3, 4, and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A21
Table A6: Supply and Demand Elasticity - Two Crop System (FAO Data)
Unrestricted 2x2 System 2x2 System with Symmetry Imposed
Log Log Log Log Log Log Log Log
Maize Other Maize Other Maize Other Maize Other
(1a) (1b) (2a) (2b) (3a) (3b) (4a) (4b)
Panel A: Supply System
Log Maize Price 0.086 -0.024 0.085 0.002 0.136

-0.001 0.106 0.006


(0.118) (0.078) (0.141) (0.090) (0.070) (0.047) (0.081) (0.058)
Log Other Price 0.040 0.105

0.024 0.068 -0.001 0.088

0.006 0.064
(0.088) (0.058) (0.109) (0.070) (0.047) (0.036) (0.058) (0.046)
Panel B: Demand System
Log Maize Price -0.271

0.221

-0.164 0.111 -0.269

0.240

-0.158

0.134
(0.123) (0.124) (0.120) (0.101) (0.099) (0.102) (0.078) (0.086)
Log Other Price 0.248

-0.336

0.146 -0.244

0.240

-0.361

0.134 -0.274

(0.136) (0.132) (0.139) (0.119) (0.102) (0.113) (0.086) (0.104)


Panel C: Eect of Maize Demand Shift
Multiplier 4.14 2.31 4.82 1.67 3.63 1.95 4.64 1.76
Exp. Multiplier 4.58 2.57 3.12 0.95 4.08 1.90 3.22 2.15
(95% Conf. Int.) (1.7,15.6) (-1.0,9.1) (-23.6,36.8) (-12.1,17.1) (2.6,7.1) (0.5,3.6) (2.6,16.1) (-3.4,5.2)
P-val (symmetry) 0.870 . 0.964 . . . . .
Observations 46 46 46 46 46 46 46 46
Spline Knots 4 4 5 5 4 4 5 5
Notes: Table replicates Table 7 using restricted cubic splines with both 4 as well as 5 knots to model the time trend. The multiplier gives
the price increase for a 1% outward shift in demand for maize, while baseline results give the multiplier on aggregate demand for maize, rice,
soybeans, and wheat. To make the multiplier comparable to the pooled analysis, we derive the production-weighted average multiplier of all
commodities, which are 8.37, 7.88, 7.21, and 7.86, respectively, in the four 2x2 systems. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A
2
2
Table A7: Supply and Demand Elasticity - Four Crop System (FAO Data)
Unrestricted System Symmetry Imposed
Log Log Log Log Log Log Log Log
Maize Rice Soybeans Wheat Maize Rice Soybeans Wheat
(1a) (1b) (1c) (1d) (2a) (2b) (2c) (2d)
Panel A: Supply System
Log Maize Price 0.196 0.016 -0.588

-0.089 0.232

0.026 -0.224

0.031
(0.231) (0.051) (0.185) (0.240) (0.101) (0.047) (0.085) (0.072)
Log Rice Price -0.121 0.019 -0.121 0.220 0.026 0.000 -0.054 0.081

(0.297) (0.066) (0.243) (0.310) (0.047) (0.059) (0.067) (0.046)


Log Soybeans Price -0.121 0.017 0.530

-0.085 -0.224

-0.054 0.549

-0.035
(0.351) (0.077) (0.278) (0.362) (0.085) (0.067) (0.143) (0.086)
Log Wheat Price 0.100 0.022 0.297 0.029 0.031 0.081

-0.035 0.015
(0.250) (0.055) (0.195) (0.257) (0.072) (0.046) (0.086) (0.082)
Panel B: Demand System
Log Maize Price -0.356

0.203

-0.414

0.038 -0.117

0.150

-0.060 0.039
(0.084) (0.045) (0.119) (0.080) (0.051) (0.030) (0.047) (0.039)
Log Rice Price 0.334

-0.100

0.184

0.007 0.150

-0.103

-0.058

-0.069

(0.057) (0.032) (0.086) (0.057) (0.030) (0.028) (0.033) (0.031)


Log Soybeans Price 0.241

-0.127

0.506

-0.028 -0.060 -0.058

0.172

-0.023
(0.092) (0.049) (0.125) (0.085) (0.047) (0.033) (0.068) (0.052)
Log Wheat Price -0.171

-0.057 -0.169 -0.135

0.039 -0.069

-0.023 -0.089
(0.084) (0.044) (0.113) (0.076) (0.039) (0.031) (0.052) (0.059)
Panel C: Eect of Maize Demand Shift
Multiplier 3.43 1.20 2.41 1.94 2.68 -2.46 1.32 3.87
Exp. Multiplier 1.15 0.73 0.24 0.89 3.45 1.08 0.95 2.19
(95% Conf. Int.) (-10.0,14.8) (-8.1,10.7) (-11.3,13.2) (-6.0,10.1) (-6.1,12.9) (-18.3,16.3) (-6.6,9.8) (-9.5,15.1)
P-val (symmetry) 0.025 . . . . . . .
Observations 46 46 46 46 46 46 46 46
Spline Knots 5 5 5 5
Notes: Table replicates Table 8 except that it uses FAO data instead of FAS data. The multiplier gives the price increase for a 1% outward
shift in demand for maize, while baseline results give the multiplier on aggregate demand for maize, rice, soybeans, and wheat. To make the
multiplier comparable to the pooled analysis, we derive the production-weighted average multiplier of all commodities, which is 6.63 in the
unrestricted system and 4.26 if we impose symmetry. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A
2
3
A4 FAS Data
Results in the main paper used data from FAO. This section replicates the analysis using
a dierent data set from the Foreign Agricultural Service of USDA. Each data set has
advantages: On the one hand data from FAO gives production estimates for the entire
world, while FAS only covers the biggest countries. Figure A11 shows total production for
FAO in the top left column and for FAS in the top right column, which is lower as several
countries are missing in the latter database. On the other hand, data for FAS is available
until 2010, i.e., including the recent run-up in prices.
The advantage of the FAS data is the longer temporal coverage. The disadvantage of the
FAS data is the smaller spatial coverage. Yield shocks for the biggest producers will still
be a valid instrument. The larger concern relates to derived consumption quantities, which
depend on changes in inventory levels for the largest producers, which are an incomplete
proxy for overall changes.
The main paper relies on FAO data except for the four-crop system that has so many
parameters that any additional data point (year) seems important. This section replicates
Tables of the main paper and generally nds similar results using FAO or FAS data.
The baseline supply and demand elasticity for calories (Table 1 in the main paper using
FAO data) is replicated in Table A8 using FAS data.
Table 2 in the main paper used weather shocks instead of yield shocks as instruments.
Table A9 replicates the analysis using FAS data.
Table 7 in the main paper estimated a two-crop system splitting crops into maize as well
as the sum of the other three: rice, soybeans and wheat. Table A10 replicates this analysis
using FAS data and presents results using both 4 and 5 spline knots to capture overall time
trends.
Finally, Table A11 presents the results when we separate yield shocks of each of the four
commodities are included. The coecients are not signicantly dierent from another (see
Panel D) except when the time trend is modeled with only three spline knots.
A24
Figure A11: World Production of Calories (FAO and FAS Data)
0
1
2
3
4
5
6
7
8
B
i
l
l
i
o
n

P
e
o
p
l
e

(
2
0
0
0

c
a
l
o
r
i
e
s
/
d
a
y
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
year
Maize Wheat Rice Soybeans
0
1
2
3
4
5
6
7
8
B
i
l
l
i
o
n

P
e
o
p
l
e

(
2
0
0
0

c
a
l
o
r
i
e
s
/
d
a
y
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
year
Maize Wheat Rice Soybeans
0
5
1
0
1
5
2
0
2
5
3
0
3
5
U
S

F
r
a
c
t
i
o
n

o
f

W
o
r
l
d

P
r
o
d
u
c
t
i
o
n

(
P
e
r
c
e
n
t
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
0
5
1
0
1
5
2
0
2
5
3
0
3
5
U
S

F
r
a
c
t
i
o
n

o
f

W
o
r
l
d

P
r
o
d
u
c
t
i
o
n

(
P
e
r
c
e
n
t
)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Notes: Figure displays world production of calories from maize, wheat, rice, and soybeans for 1961-2010
(top row) and the fraction of calories produced in the US (bottom row). The left column uses FAO data,
and the right column uses FAS data. The y-axis in the top row gives the number of people who could be fed
on a 2000 calories/day diet if they hypothetically only consumed the four commodities. In the bottom row,
the y-axis is the percent of global production.
A25
Table A8: Supply and Demand Elasticity (FAS Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast.
s
0.129

0.103

0.106

0.119

0.111

0.112

(0.032) (0.034) (0.032) (0.022) (0.026) (0.026)


Shock
t
1.148

1.195

1.186

1.114

1.209

1.197

(0.166) (0.131) (0.126) (0.114) (0.096) (0.096)


First Stage
t1
-3.399

-2.645

-2.709

-2.802

-2.535

-2.595

(1.159) (0.921) (0.948) (0.840) (0.776) (0.776)


First Stage
t
-2.480 -1.557 -1.627 -2.578

-1.557

-1.630

(1.628) (1.199) (1.239) (1.121) (0.888) (0.880)


Panel B: Demand Equation
Demand Elast.
d
-0.034 -0.093

-0.087

-0.031 -0.094

-0.088

(0.034) (0.038) (0.038) (0.037) (0.043) (0.039)


First Stage
t
-4.642

-3.489

-3.532

-4.709

-3.464

-3.512

(1.415) (1.170) (1.178) (1.356) (1.106) (1.080)


Panel C: Eect of Demand Shift
Multiplier
1

d
6.15 5.12 5.18 6.69 4.89 5.00
Exp. Multiplier 6.96 3.95 5.65 7.20 5.25 5.32
(95% Conf. Int.) (3.9,14.2) (3.4,10.6) (3.4,10.5) (4.5,12.9) (3.3,9.2) (3.5,9.0)
F
1st-stage
Supply 8.60 8.25 8.17
F
1st-stage
Demand 10.76 8.89 9.00
Observations 49 49 49 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table 1 except that it uses FAS data instead of FAO data, which runs through 2010.
Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars
indicate signicance levels:

: 1%;

: 5%;

: 10%.
A26
Table A9: Supply and Demand Elasticity - Weather as Instrument (FAS Data)
(1a) (1b) (2a) (2b) (3a) (3b)
log Q log P log Q log P log Q log P
Panel A: Supply Equation
Supply Elast.
s
0.092

0.086 0.086
(0.048) (0.059) (0.057)
Temperature T
t1
3.443

3.147

3.149

(0.847) (0.728) (0.762)


Temperature T
2
t1
-0.090

-0.082

-0.082

(0.021) (0.018) (0.019)


Precipitation P
t1
2.432 2.823 2.996
(2.239) (1.913) (2.053)
Precipitation P
2
t1
0.599 -0.150 -0.263
(1.075) (0.928) (0.986)
Temperature T
t
0.051 2.039

0.039 1.617

0.011 1.564

(0.201) (0.750) (0.222) (0.692) (0.218) (0.717)


Temperature T
2
t
-0.002 -0.052

-0.002 -0.041

-0.001 -0.039

(0.005) (0.019) (0.006) (0.018) (0.006) (0.018)


Precipitation P
t
0.344 2.367 0.513 2.230 0.644 2.724
(0.351) (1.819) (0.389) (1.671) (0.399) (1.798)
Precipitation P
2
t
-0.381

-0.546 -0.500

-0.698 -0.551

-0.871
(0.149) (0.836) (0.165) (0.764) (0.168) (0.793)
Panel B: Demand Equation
Demand Elast.
d
-0.004 -0.068

-0.071

(0.029) (0.036) (0.037)


Temperature T
t
1.269 0.819 0.965
(1.167) (0.948) (0.962)
Temperature T
2
t
-0.033 -0.021 -0.025
(0.029) (0.023) (0.024)
Precipitation P
t
0.947 -0.582 -1.231
(3.198) (2.584) (2.649)
Precipitation P
2
t
1.655 1.631 1.839
(1.455) (1.176) (1.192)
Panel C: Eect of Demand Shift
Multiplier
1

d
10.43 6.46 6.36
Exp. Multiplier 7.38 9.63 7.48
(95% Conf. Int.) (4.7,58.9) (3.5,25.0) (3.6,23.0)
Observations 47 47 47 47 47 47
Spline Knots 3 3 4 4 5 5
Notes: Table replicates Table 2 except that it uses FAS data instead of FAO data. The sample runs through
2008 as the weather data set ends in 2008. Columns (a), (b), and (c) include restricted cubic splines in time
with 3, 4, and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A27
Table A10: Supply and Demand Elasticity - Two Crop System (FAS Data)
Unrestricted 2x2 System 2x2 System with Symmetry Imposed
Log Log Log Log Log Log Log Log
Maize Other Maize Other Maize Other Maize Other
(1a) (1b) (2a) (2b) (3a) (3b) (4a) (4b)
Panel A: Supply System
Log Maize Price 0.061 -0.046 0.055 -0.054 0.124 -0.013 0.135 -0.020
(0.123) (0.069) (0.132) (0.074) (0.089) (0.056) (0.092) (0.060)
Log Other Price 0.044 0.139

0.051 0.148

-0.013 0.115

-0.020 0.125

(0.090) (0.051) (0.099) (0.056) (0.056) (0.046) (0.060) (0.049)


Panel B: Demand System
Log Maize Price -0.532

0.183 -0.444

0.091 -0.382

0.369

-0.315

0.285

(0.226) (0.162) (0.225) (0.136) (0.132) (0.164) (0.123) (0.153)


Log Other Price 0.610

-0.363

0.506

-0.233 0.369

-0.617

0.285

-0.496

(0.288) (0.207) (0.290) (0.176) (0.164) (0.216) (0.153) (0.205)


Panel C: Eect of Maize Demand Shift
Multiplier 2.99 1.36 3.06 1.16 3.25 1.69 3.33 1.63
Exp. Multiplier 7.23 3.61 4.02 1.54 3.71 1.81 3.70 1.73
(95% Conf. Int.) (0.7,13.1) (-1.8,7.0) (-4.4,18.1) (-5.1,9.4) (2.2,7.5) (0.6,4.0) (2.2,8.2) (-0.0,3.9)
P-val (symmetry) 0.223 . 0.221 . . . . .
Observations 49 49 49 49 49 49 49 49
Spline Knots 4 4 5 5 4 4 5 5
Notes: Table replicates Table 7 except that it uses FAS data and uses restricted cubic splines with both 4 as well as 5 knots to model the time
trend. The multiplier gives the price increase for a 1% outward shift in demand for maize, while baseline results give the multiplier on aggregate
demand for maize, rice, soybeans, and wheat. To make the multiplier comparable to the pooled analysis, we derive the production-weighted
average multiplier of all commodities, which are 5.48, 5.19, 6.35, and 6.33, respectively, in the four 2x2 systems. Stars indicate signicance
levels:

: 1%;

: 5%;

: 10%.
A
2
8
Table A11: Supply and Demand Elasticity - Separating Shocks of Four Crops (FAS Data)
Instrumental Variables Three Stage Least Squares
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast. s 0.162

0.113

0.112

0.155

0.120

0.118

(0.036) (0.037) (0.036) (0.027) (0.026) (0.026)


Shock
t,M
1.474

1.436

1.415

1.136

1.430

1.400

(0.208) (0.165) (0.150) (0.190) (0.154) (0.155)


Shock
t,R
0.955 1.715

1.385

1.129

1.745

1.470

(0.659) (0.414) (0.568) (0.512) (0.373) (0.443)


Shock
t,S
1.296

1.309

1.446

1.236

1.313

1.370

(0.743) (0.523) (0.462) (0.555) (0.440) (0.448)


Shock
t,W
1.038

0.880

0.879

0.958

0.917

0.910

(0.207) (0.174) (0.181) (0.195) (0.167) (0.166)


First Stage
t1,M
0.047 -0.962 -1.307 1.086 -0.017 -0.197
(2.026) (1.676) (1.732) (1.424) (1.483) (1.574)
First Stage
t1,R
-10.353

-4.151 -4.745 -4.651 0.045 -0.847


(4.856) (4.937) (5.019) (3.680) (3.922) (4.003)
First Stage
t1,S
-9.453 -4.586 -2.812 -8.844

-5.164 -4.086
(7.901) (6.833) (7.472) (3.981) (4.128) (4.495)
First Stage
t1,W
-3.097

-3.431

-3.466

-3.377

-4.131

-4.258

(1.719) (1.681) (1.692) (1.441) (1.445) (1.489)


First Stage
t,M
1.136 0.607 0.573 1.928 0.790 0.802
(2.801) (2.508) (2.468) (1.910) (1.744) (1.764)
First Stage
t,R
-8.147 -2.644 -3.646 -11.912

-4.338 -4.129
(5.688) (5.946) (5.825) (4.074) (4.215) (4.717)
First Stage
t,S
-7.815 -3.904 -3.016 -7.961 -3.658 -3.522
(8.408) (6.951) (6.919) (4.937) (4.549) (4.758)
First Stage
t,W
-3.090

-3.437

-3.406

-3.868

-3.987

-4.143

(1.441) (1.371) (1.408) (1.854) (1.694) (1.747)


Panel B: Demand Equation
Demand Elast.
d
0.036 -0.096

-0.082

0.043

-0.099

-0.076

(0.029) (0.037) (0.035) (0.019) (0.029) (0.026)


First Stage
t,M
-3.472 -4.896

-5.204

-3.374 -4.964

-5.557

(2.264) (1.978) (1.914) (2.396) (1.646) (1.771)


First Stage
t,R
-19.207

-6.327 -8.208 -19.284

-6.114

-5.735
(3.752) (4.264) (5.538) (4.384) (3.529) (4.533)
First Stage
t,S
-7.708 -1.933 -0.249 -7.711 -3.381 -3.724
(7.569) (6.587) (6.264) (6.450) (3.891) (4.543)
First Stage
t,W
-2.216 -1.889 -1.841 -2.201 -1.228 -1.486
(2.077) (1.950) (1.871) (2.256) (1.353) (1.503)
Panel C: Eect of Demand Shift
Multiplier
1

d
7.94 4.78 5.13 8.94 4.58 5.15
Exp. Mult. (s.e.) 9.98 5.16 5.61 9.97 4.73 5.34
(95% Conf. Int.) (4.5,26.8) (3.2,9.4) (3.4,10.4) (5.9,18.5) (3.4,6.9) (3.8,8.0)
Panel D: P-value on Equal Coecients
S
1st-stage

t1
equal 0.17 0.73 0.70 0.08 0.36 0.45
D
1st-stage
t equal 0.00 0.65 0.47 0.01 0.29 0.36
F
1st-stage
Supply 2.40 1.72 1.55
F
1st-stage
Demand 9.93 3.15 2.99
Observations 49 49 49 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates Table A5 except that it uses FAS data. It includes separate shocks for each of
the four crops: maize (M), rice (R), soybeans (S), and wheat (W). Shocks are normalized by the predicted
fraction of global production to make them comparable. Panel D presents p-values from tests whether the
coecients on the shocks are jointly the same. Columns (a), (b), and (c) include restricted cubic splines in
time with 3, 4, and 5 knots, respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A29
A5 Sensitivity Checks
Table A12 presents two sets of standard errors for the IV regressions: one that is uncorrected
as well as one that accounts for heteroscedasticity and serial correlation of unknown form.
The estimates are generally similar in the second stage, suggesting that heteroscedasticity
and serial correlation are not important in the estimated standard errors of the elasticities of
interest. The remainder therefore presents results using three stage least square estimates,
which are more ecient.
Table A13 limits the analysis to 1961-2003 or 1961-2005, so the data set stops before
the recent run-up in prices and the implementation of the 2007 or 2009 Renewable Fuel
standards, but results are similar.
Table A14 varies the timing at which we evaluate futures prices. Final results of a years
production shock are not fully revealed before December. On the other hand, planting
decisions for the next years harvest of winter wheat are made in September in the northern
hemisphere. We therefore consider futures prices in September of the previous year (Panel
A), or March of the concurrent year (Panel B), because production shocks in the Southern
hemisphere are resolved by March of the concurrent year. Panel C again evaluates prices at
the end of the year, but uses the spot price in the demand equation instead of the futures
price during the month of delivery. Results are similar in all cases.
To check the sensitivity of our estimates to the derivation of yield shocks, Table A15
replicates the analysis using linear time trends, restricted cubic splines with 4 knots (3
variables), or restricted cubic splines with 5 knots (4 variables) in the derivation of the yield
shocks. Our baseline specication used 3 spline knots (2 variables). The results are again
insensitive to the chosen time trend in the derivation of yield shocks.
Table A16 further examines the derivation of yield shocks. Panel A replicates the analysis
by using yield shocks that are not jackknifed as in our baseline. Panels B and C allow yields
to be autocorrelated, which may arise from technological breakthroughs or if weather has
autocorrelation. We t models up to MA(1) or MA(3), respectively, for each country and
crop. For example, in panel C, we t four models.
A6
The model with the lowest BIC is
chosen, and yield deviations are the innovations in a given period, i.e., the new information
that has been revealed. Results remain robust.
Table A17 reports results from three further sensitivity checks. Given that prices show a
high degree of persistence, we include the second lag of prices in panel A. Log futures prices
A6
MA(0), MA(1), MA(2), and MA(3).
A30
for delivery in period t that are traded at the end of t 1 are instrumented with the yield
shock in
t1
, while controlling for the second lag of the dependent variable, i.e., log futures
prices with a maturity in t 1 that are traded in t 2. Panel B uses two lagged shocks
t1
and
t2
to instrument futures prices. The panel also presents results from overidentication
tests as we now include two instruments, but none of them have p-values below 0.40. Panel C
rescales the caloric conversion ratios so the average price in 1961-2010 of all four crops equals
that of maize.
A7
The original as well as the rescaled price series are shown in Figure A9. We
do this as the average price of rice is highest, and shifts in production between crops hence
alters the overall price. However, the results are insensitive to this rescaling.
A7
In other words, the price series of wheat, soybeans and rice are each multiplied by a constant so the
average price equals the maize average price.
A31
Table A12: Supply and Demand Elasticity (Standard vs Robust Errors)
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Equation
Supply Elast.
s
0.102

0.096

0.087

0.129

0.103

0.106

[0.024] [0.023] [0.019] [0.033] [0.032] [0.031]


(0.025) (0.025) (0.020) (0.032) (0.034) (0.032)
Shock
t
1.184

1.229

1.211

1.148

1.195

1.186

[0.127] [0.106] [0.092] [0.143] [0.102] [0.102]


(0.146) (0.138) (0.105) (0.166) (0.131) (0.126)
First Stage
t1
-3.901

-3.628

-3.824

-3.399

-2.645

-2.709

[1.016] [0.853] [0.877] [1.202] [0.944] [0.945]


(1.145) (0.945) (0.910) (1.159) (0.921) (0.948)
First Stage
t
-2.918

-2.276

-2.372

-2.480

-1.557 -1.627

[1.031] [0.876] [0.891] [1.202] [0.949] [0.951]


(1.647) (1.294) (1.279) (1.628) (1.199) (1.239)
Panel B: Demand Equation
Demand Elast.
d
-0.028 -0.055

-0.054

-0.034 -0.093

-0.087

[0.024] [0.022] [0.020] [0.040] [0.043] [0.039]


(0.021) (0.024) (0.022) (0.034) (0.038) (0.038)
First Stage
t
-5.564

-4.655

-4.770

-4.642

-3.489

-3.532

[1.461] [1.290] [1.291] [1.445] [1.169] [1.155]


(1.489) (1.300) (1.249) (1.415) (1.170) (1.178)
Panel C: Eect of Demand Shift
Multiplier
1

d
7.73 6.63 7.06 6.15 5.12 5.18
Exp. Mult. [s.e.] 8.39 6.99 7.38 9.31 5.63 5.66
[95% Conf. Int.] [5.1,15.8] [4.7,11.4] [5.1,11.5] [3.8,16.0] [3.3,11.0] [3.4,10.6]
Exp. Mult. (s.e.) 8.39 7.08 7.42 6.96 3.95 5.65
(95% Conf. Int.) (5.2,15.3) (4.6,12.2) (5.0,12.0) (3.9,14.2) (3.4,10.6) (3.4,10.5)
Panel D: Test whether
t
is i.i.d.
Autocorr. (p-val) 0.303 0.406 0.402 0.523 0.659 0.649
Heterosc. (p-val) 0.724 0.410 0.537 0.766 0.715 0.659
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates IV regressions of Tables 1 and A8 but displays two sets of errors: standard errors
in square brackets [] are unadjusted, and standard errors in round brackets () adjust for heteroscedasticity
and autocorrelation of an arbitrary form. The rst three columns (1a)-(1b) use data from FAO, while
columns (2a)-(2c) use data from FAS. Panel D regresses
t
on the time controls given in the last row and
tests whether the residuals exhibit autocorrelation or heteroscedasticity. Columns (a), (b), and (c) include
restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate signicance levels and are
based on standard errors in squared brackets:

: 1%;

: 5%;

: 10%.
A32
Table A13: Supply and Demand Elasticity - Sensitivity to Years
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Years 1961-2003
Supply Elast.
s
0.117

0.120

0.097

0.116

0.117

0.109

(0.019) (0.020) (0.019) (0.023) (0.025) (0.025)


Demand Elast.
d
-0.041

-0.056

-0.076

-0.052

-0.082

-0.081

(0.022) (0.023) (0.021) (0.029) (0.033) (0.030)


Multiplier
1

d
6.33 5.68 5.77 5.93 5.03 5.28
Exp. Multiplier 6.55 5.85 5.93 6.21 5.26 5.50
(95% Conf. Int.) (4.7,9.7) (4.3,8.5) (4.4,8.4) (4.2,9.8) (3.6,8.3) (3.8,8.5)
Observations 42 42 42 42 42 42
Spline Knots 3 4 5 3 4 5
Panel B: Years 1961-2005
Supply Elast.
s
0.116

0.114

0.094

0.117

0.114

0.107

(0.020) (0.020) (0.019) (0.022) (0.025) (0.024)


Demand Elast.
d
-0.043

-0.061

-0.072

-0.051 -0.086

-0.082

(0.024) (0.023) (0.020) (0.031) (0.032) (0.030)


Multiplier
1

d
6.29 5.70 6.03 5.93 5.00 5.28
Exp. Multiplier 6.54 5.88 6.21 6.22 5.22 5.50
(95% Conf. Int.) (4.6,9.9) (4.3,8.5) (4.6,8.9) (4.2,9.9) (3.6,8.1) (3.9,8.4)
Observations 44 44 44 44 44 44
Spline Knots 3 4 5 3 4 5
Panel C: Years 1961-2007 and 1961-2010 (Baseline)
Supply Elast.
s
0.116

0.112

0.097

0.119

0.111

0.112

(0.019) (0.020) (0.019) (0.022) (0.026) (0.026)


Demand Elast.
d
-0.034 -0.062

-0.066

-0.031 -0.094

-0.088

(0.023) (0.022) (0.021) (0.037) (0.043) (0.039)


Multiplier
1

d
6.65 5.75 6.12 6.69 4.89 5.00
Exp. Multiplier 6.90 5.92 6.31 7.20 5.25 5.32
(95% Conf. Int.) (4.9,10.4) (4.3,8.5) (4.6,9.1) (4.5,12.9) (3.3,9.2) (3.5,9.0)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates 3SLS regressions in Table 1 and Table A8 except that dierent years are used in
the regression. The rst three columns (1a)-(1b) use data from FAO, while columns (2a)-(2c) use data from
FAS. Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively.
Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A33
Table A14: Supply and Demand Elasticity - Sensitivity to Month of Price
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Supply Price in September of Previous Year
Supply Elast.
s
0.110

0.107

0.092

0.113

0.108

0.109

(0.019) (0.020) (0.018) (0.023) (0.027) (0.026)


Demand Elast.
d
-0.034 -0.062

-0.066

-0.031 -0.094

-0.088

(0.023) (0.022) (0.021) (0.037) (0.043) (0.039)


Multiplier
1

d
6.95 5.91 6.33 6.93 4.95 5.09
Exp. Multiplier 7.23 6.10 6.52 7.56 5.32 5.44
(95% Conf. Int.) (5.1,11.1) (4.4,8.9) (4.8,9.4) (4.6,14.0) (3.4,9.5) (3.5,9.3)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel B: Supply Price in March
Supply Elast.
s
0.125

0.120

0.105

0.127

0.119

0.121

(0.020) (0.021) (0.019) (0.027) (0.030) (0.030)


Demand Elast.
d
-0.034 -0.062

-0.066

-0.031 -0.094

-0.088

(0.023) (0.022) (0.021) (0.037) (0.043) (0.039)


Multiplier
1

d
6.29 5.50 5.84 6.33 4.69 4.79
Exp. Multiplier 6.51 5.66 6.00 6.80 5.13 5.10
(95% Conf. Int.) (4.7,9.6) (4.2,8.1) (4.4,8.5) (4.3,12.2) (3.2,8.8) (3.3,8.7)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel C: Spot Price in Demand Equation
Supply Elast.
s
0.109

0.111

0.096

0.117

0.107

0.112

(0.022) (0.022) (0.019) (0.028) (0.030) (0.029)


Demand Elast.
d
-0.059

-0.088

-0.094

-0.043 -0.120

-0.106

(0.024) (0.021) (0.018) (0.035) (0.038) (0.035)


Multiplier
1

d
5.97 5.03 5.28 6.27 4.41 4.59
Exp. Multiplier 6.10 5.12 5.37 6.48 4.53 4.72
(95% Conf. Int.) (4.6,8.4) (4.0,6.7) (4.2,7.1) (4.7,9.5) (3.3,6.5) (3.5,6.7)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates 3SLS regressions in Table 1 and Table A8 except for the month at which futures
prices are evaluated. The rst three columns (1a)-(1b) use data from FAO, while columns (2a)-(2c) use
data from FAS. Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots,
respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A34
Table A15: Supply and Demand Elasticity - Sensitivity to Specication of Yield Trend in
Derivation of Yield Shocks
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Linear Yield Trend
Supply Elast.
s
0.128

0.124

0.094

0.122

0.120

0.116

(0.022) (0.022) (0.019) (0.028) (0.026) (0.025)


Demand Elast.
d
-0.033 -0.056

-0.068

-0.088 -0.089

-0.084

(0.025) (0.022) (0.021) (0.067) (0.039) (0.035)


Multiplier
1

d
6.22 5.56 6.18 4.77 4.78 4.99
Exp. Multiplier 6.47 5.73 6.37 5.40 5.07 5.25
(95% Conf. Int.) (4.5,9.9) (4.2,8.3) (4.6,9.2) (2.8,14.6) (3.3,8.4) (3.5,8.5)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel B: Yield Trend with 4 Spline Knots
Supply Elast.
s
0.104

0.091

0.092

0.121

0.118

0.118

(0.021) (0.021) (0.020) (0.026) (0.027) (0.026)


Demand Elast.
d
-0.059

-0.081

-0.073

-0.082 -0.097

-0.090

(0.027) (0.025) (0.022) (0.061) (0.041) (0.038)


Multiplier
1

d
6.15 5.82 6.06 4.93 4.65 4.80
Exp. Multiplier 6.42 6.04 6.27 5.93 4.96 5.06
(95% Conf. Int.) (4.4,10.0) (4.3,9.1) (4.5,9.3) (3.0,12.7) (3.2,8.5) (3.4,8.3)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel C: Yield Trend with 5 Spline Knots
Supply Elast.
s
0.100

0.086

0.083

0.080

0.074

0.077

(0.026) (0.025) (0.024) (0.035) (0.038) (0.036)


Demand Elast.
d
-0.072

-0.089

-0.085

-0.076 -0.107

-0.100

(0.031) (0.026) (0.024) (0.065) (0.052) (0.048)


Multiplier
1

d
5.85 5.72 5.93 6.41 5.52 5.63
Exp. Multiplier 6.20 5.99 6.21 9.10 7.44 6.52
(95% Conf. Int.) (4.1,10.4) (4.1,9.5) (4.3,9.8) (3.2,30.7) (3.2,17.7) (3.4,15.9)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates 3SLS regressions in Table 1 and Table A8 except that various time trends are used
to derive yield deviations. The rst three columns (1a)-(1b) use data from FAO, while columns (2a)-(2c)
use data from FAS. Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots,
respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A35
Table A16: Supply and Demand Elasticity - Sensitivity to Derivation of Yield Shocks
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Residuals (Not Jackknifed)
Supply Elast.
s
0.118

0.113

0.098

0.119

0.110

0.112

(0.019) (0.020) (0.018) (0.022) (0.026) (0.025)


Demand Elast.
d
-0.035 -0.063

-0.067

-0.030 -0.096

-0.090

(0.023) (0.023) (0.021) (0.036) (0.043) (0.040)


Multiplier
1

d
6.57 5.69 6.06 6.70 4.86 4.97
Exp. Multiplier 6.82 5.87 6.24 7.16 5.19 5.29
(95% Conf. Int.) (4.8,10.2) (4.3,8.5) (4.6,9.0) (4.5,12.7) (3.3,9.2) (3.4,9.0)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel B: Innovations in MA(1) Yield Model
Supply Elast.
s
0.117

0.114

0.076

0.135

0.134

0.130

(0.034) (0.036) (0.033) (0.037) (0.042) (0.040)


Demand Elast.
d
-0.055 -0.064

-0.086

-0.093 -0.102

-0.100

(0.046) (0.036) (0.036) (0.088) (0.058) (0.054)


Multiplier
1

d
5.83 5.60 6.20 4.38 4.25 4.33
Exp. Multiplier 6.82 6.20 7.03 6.16 5.02 4.52
(95% Conf. Int.) (3.5,16.2) (3.6,12.9) (3.9,15.2) (2.2,20.9) (2.6,12.0) (2.7,11.2)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Panel C: Innovations in MA(3) Yield Model
Supply Elast.
s
0.119

0.118

0.078

0.136

0.136

0.131

(0.036) (0.037) (0.034) (0.041) (0.043) (0.040)


Demand Elast.
d
-0.056 -0.061 -0.082

-0.102 -0.103

-0.103

(0.054) (0.038) (0.038) (0.097) (0.059) (0.056)


Multiplier
1

d
5.71 5.60 6.27 4.19 4.18 4.28
Exp. Multiplier 6.95 5.55 7.21 5.91 5.28 4.79
(95% Conf. Int.) (3.2,20.2) (3.5,13.5) (3.8,16.5) (1.9,23.8) (2.5,11.9) (2.6,11.2)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates 3SLS regressions in Table 1 and Table A8 except that yield deviations are from
standard regressions (not jackknifed) or more general MA(1) or MA(3) models. The preferred model is
selected using the BIC criteria, and yield residuals are innovations for the model in question. The rst three
columns (1a)-(1b) use data from FAO, while columns (2a)-(2c) use data from FAS. Columns (a), (b), and
(c) include restricted cubic splines in time with 3, 4, and 5 knots, respectively. Stars indicate signicance
levels:

: 1%;

: 5%;

: 10%.
A36
Table A17: Supply and Demand Elasticity - Price Rescale and Lag Structure
FAO Data FAS Data
(1a) (1b) (1c) (2a) (2b) (2c)
Panel A: Include Lagged Prices
Supply Elast.
s
0.104

0.099

0.100

0.134

0.117

0.121

(0.014) (0.015) (0.014) (0.015) (0.016) (0.015)


Demand Elast.
d
-0.039 -0.055

-0.053

-0.019 -0.101

-0.090

(0.026) (0.017) (0.017) (0.039) (0.043) (0.040)


Multiplier
1

d
6.97 6.51 6.51 6.57 4.59 4.74
Exp. Multiplier 7.29 6.66 6.63 -4.93 4.82 4.96
(95% Conf. Int.) (5.0,11.5) (5.1,9.1) (5.1,8.9) (4.2,15.1) (3.3,7.7) (3.4,7.8)
Observations 45 45 45 48 48 48
Spline Knots 3 4 5 3 4 5
Panel B: Two Lags of Shocks in Supply
Supply Elast.
s
0.132

0.127

0.118

0.140

0.127

0.130

(0.018) (0.021) (0.018) (0.020) (0.026) (0.025)


Demand Elast.
d
-0.027 -0.055

-0.057

-0.026 -0.063

-0.063

(0.022) (0.020) (0.020) (0.036) (0.031) (0.030)


Multiplier
1

d
6.29 5.48 5.73 6.02 5.28 5.18
Exp. Multiplier 6.48 5.63 5.87 6.41 5.58 5.46
(95% Conf. Int.) (4.7,9.4) (4.2,7.9) (4.4,8.2) (4.2,10.9) (3.7,9.3) (3.7,8.8)
Overid. (p-value) 0.553 0.409 0.367 0.833 0.705 0.756
Observations 45 45 45 48 48 48
Spline Knots 3 4 5 3 4 5
Panel C: Caloric Conversion to Equate Avg. Price
Supply Elast.
s
0.113

0.097

0.091

0.124

0.107

0.111

(0.017) (0.018) (0.017) (0.020) (0.023) (0.022)


Demand Elast.
d
-0.016 -0.069

-0.067

0.001 -0.089

-0.080

(0.015) (0.022) (0.019) (0.022) (0.038) (0.034)


Multiplier
1

d
7.72 6.03 6.32 8.12 5.11 5.25
Exp. Multiplier 7.94 6.21 6.49 8.47 5.41 5.50
(95% Conf. Int.) (5.9,11.2) (4.6,8.9) (4.8,9.2) (5.9,13.2) (3.6,8.8) (3.8,8.7)
Observations 46 46 46 49 49 49
Spline Knots 3 4 5 3 4 5
Notes: Table replicates 3SLS regressions in Table 1 and Table A8 except for caloric conversion factors and
how many lags are included. Panel B also includes overidentication tests for the supply equation, which
includes two instruments. The rst three columns (1a)-(1b) use data from FAO, while columns (2a)-(2c) use
data from FAS. Columns (a), (b), and (c) include restricted cubic splines in time with 3, 4, and 5 knots,
respectively. Stars indicate signicance levels:

: 1%;

: 5%;

: 10%.
A37