Is biofuel production leading to a surge in fertiliser use in the United States? Evidence from a TVP-VAR model

Abstract

This paper aims to evaluate the dynamic interconnectedness between biofuel production, fertiliser production, and fertiliser consumption in the United States. A time-varying parameter vector autoregression model is used to assess the direction, intensity, and evolution of spill over connections between the variables. Ethanol and biodiesel are the primary biofuels, and the paper innovates by considering the individual fertilisers (nitrogen, phosphorus, and potassium) used for corn (in ethanol production) and soybeans (in biodiesel production), as well as the production index of those fertilisers. The findings suggest that biofuel and biodiesel production have no significant impact on either the demand or supply of fertilisers. Meanwhile, the demand and supply of fertilisers have substantial spill over effects on biofuel and biodiesel production. As such, in the biofuel-fertiliser nexus, shock transmission runs from the latter to the former.