How (corn) ethanol kills: a lesson in basic economics pertaining to fuel supply, fuel demand and price.
In an earlier post, I argued that people need to better appreciate that dollars are fungible (see here and here). Why is it important to understand that dollars are fungible? A case in point is the new American enthusiasm for turning food into fuel. Consider this report from Fortune Magazine:
The growing myth that corn is a cure-all for our energy woes is leading us toward a potentially dangerous global fight for food. While crop-based ethanol -the latest craze in alternative energy – promises a guilt-free way to keep our gas tanks full, the reality is that overuse of our agricultural resources could have consequences even more drastic than, say, being deprived of our SUVs. It could leave much of the world hungry.
We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources.
This year cars, not people, will claim most of the increase in world grain consumption. The problem is simple: It takes a whole lot of agricultural produce to create a modest amount of automotive fuel.
The grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year.
And consider this additional bad news from Earth Policy Institute:
We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.
The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.
As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.
Here’s are a few rhetorical questions to consider: Can Americans justify filling up any more of those big SUV fuel tanks now that there is solid evidence that doing so will cause families on the other side of the world to suffer and die? Can we justify cranking up the heat in the winter to stay toasty warm? Should we merrily take long trips without considering the effects of burning this extra fuel on food prices (and thus food availability) to those people who are living on the margin? Can we justify building more houses in the exburbs?
We are now witnessing a collision between A) our desire to have fun and feel prestige through the discretionary buring of fuel, versus B) our ability to honestly look in the mirror to see ourselves as kind, decent and caring people.