Motivated by the rapid rise and volatility of oil prices, many countries are promoting biofuels as alternative energy sources. The claimed advantage that biofuels reduce GHG emissions is also an additional driver behind the widespread adoption of biofuel in Ethiopia and other countries. However, there is a growing concern that expanded production of biofuels might crowd out agricultural production by vying for scarce land and water resources. This article uses a partial equilibrium model to examine the competition between food and biofuel production in Ethiopia. The partial equilibrium model replicates a baseline scenario of Ethiopia’s Social Account Matrix for the year 2000. Several simulation exercises are implemented to examine the effects of reductions in biofuel processing costs and rise of oil prices on agricultural production and consumption. The results show that the expansion of biofuel production has limited scope to crowd out agricultural production. However, the results are preliminary and future research could give more insights by exploring long-run dynamics, such as changes in agricultural productivity, energy and food demand, and availability of arable land.