European biodiesel market and rapeseed oil: what impact on agricultural food prices?

The last decade has seen a rapid increase in the production and consumption of biodiesel in the EU. This development has been especially stimulated by EU policy as a means to promote energy security and to reduce the emissions of greenhouse gases. However, in recent years, biodiesel production has been questioned due to the possible impact on food prices. This paper aims to explore the impact of EU biodiesel prices on diesel and rapeseed oil prices, using a Vector Error Corrections Model (VECM). Impulse response functions and forecast error variance decompositions are also computed in order to investigate the interrelationships within the relevant time series. Unlike the predominant literature, which mainly addresses the US and Brazilian ethanol sector, this paper focuses on the European biodiesel market. Our results suggest that biodiesel prices are mainly affected by feedstock prices, but there is no strong evidence that changes in biodiesel prices affect food prices.