The media loves to perpetuate so called news stories that are outright nonsense and just straight up lies onto the American people. One of the grossest lies being pushed right now, second only to Global Warming, is the story blaming the ethanol industry for the current world food shortages and for the perceived food shortages in America.
There have been food shortages across the globe ever since people inhabited it. This is nothing new; it has been going on for thousands of years. There is a multitude of causes of food shortages. Political corruption, crop failures, wars, and just plain being to poor to afford it are all potential causes of food shortages. None of these things were caused by the ethanol industry. As to the current American food crisis, give me a break! We eat cheaper than anyone else in the world. And we show it too. The last statistics I heard pegged 58 million Americans as being overweight, 40 million as being obese, and 3 million morbidly obese. I think most Americans could probably handle to miss a meal or two. When we think of poverty in Africa we picture an image of a malnourished child, when we think of poverty in America we picture a fat kid playing a video game. That’s how good we have it in America. When was the last time you heard of anyone starving to death in America?
I will agree that food prices have increased. But, the cost of basic staple foods is still cheap in comparison to how much we spend on everything else. I find it amusing when I stand in line at the local Wal-Mart and watch people in the checkout lane. A vast majority of people, especially people that society would consider underprivileged, have shopping carts full of highly processed and nutritionally poor foods. These foods also happen to be the most expensive ones by comparison. Don’t even get me started on soda pop. Pop is the probably the worst thing you could drink for your body and your pocketbook. Yet people continue to buy it by the ton. Basically people load their carts with expensive JUNK food and then complain when the price goes up. I don’t buy potato chips, cheese whiz, super chocolate chunk cookies or anything else along those lines. And, no I am not a nutrition freak. I drink beer and use tobaccos along with a plethora of other things that I’m sure are not good for me and I don’t need. However, when it comes to food I do try to buy practical foods that are usually required to undergo a process called cooking before they are edible. I’m not saying I don’t splurge occasionally and go out for prime rib and things like that, but it is not a habit. Milk, eggs, bread, ground beef, raw chicken, pork and most unprocessed staple foods are very cheap compared to the frozen food aisle junk foods. And they are STILL really cheap when you consider what percentage of our income they comprise.
I’ll take a stab at trying to explain, in my opinion, the real causes behind the current run up in food prices. Obviously the prices of the grains needed to feed livestock have gone up considerably. But, I don’t believe ethanol is the main driver behind this. China and India’s vast populations are rapidly modernizing. They are moving to the cities and are starting to enjoy the finer things in life, including more food and fuel.
America is still exporting a large amount of corn. We are not burning it all up in our gas tanks like the media would lead you to believe. It was not long ago, 2005, that corn prices were around $1.50/bushel. There were mountains of corn piled across the corn-belt because our infrastructure was not large enough to handle the increasingly large corn crops produced by the American farmer. The ethanol industry was born as a result of the American farmer trying to find a way to increase the value and have domestic use for their corn. Fast forward three years and here we are, $6 corn and everyone from cattle, hog and chicken farmers to your average Wal-Mart consumer are screaming from the rooftops that ethanol is the worst thing to happen to civilization since the plague. I can see how $6 corn would definitely affect the livestock producer’s bottom line, but in the long run prices will reach equilibrium and bring those industries back to normal profit margins. I’ve never spoke to a cattle feeder that didn’t lose money every year anyway so I don’t see how this can be anything out of the ordinary. How someone can lose money every year doing something and still be able to do it for 30 years is beyond me, but I digress.
In my opinion there are two big factors causing the run up in commodity and food prices, Oil and the US Dollar.
As I’m writing this crude oil is trading at $119 a barrel. Oil is the lifeblood of our economy. Everything that we buy on the shelves of Wal-Mart got there by a truck fueled by oil. Those costs are going to be passed on to the consumer in the form of higher prices. There is no way around it. Until this oil thing cools off, if it ever does, we are just going to have to deal with it.
The other fact, which probably has more impact than the price of oil on food prices, is the absolute slaughter of the US Dollar on the world market. Our government has spent money like Paris Hilton on Rodeo Drive. If our government was analyzed like a business, it would put Enron’s balance sheet to shame. Poor fiscal policies along with poor monetary policies have lead to our currency being worth about half of what it was worth a few years ago in relation to the Euro. Well, when the dollar is worth less it takes more dollars to equal the same purchasing power. This mismanagement by our government in an effort to provide massive entitlement programs and the interest rate cutting to try and ward off a recession has done nothing but put the consumer in an even deeper hole. Inflation is an across the board pay cut for anyone who is paid in dollars. This devaluation of the dollar is making our grain cheaper on the world markets. Other countries are more apt to run prices higher because of the currency spreads right now with the US Dollar. It is not ethanol causing $6 corn, $13 soybeans, and $10 wheat; it is the decline of the Dollar! Although bio-fuels are putting a very good domestic demand base under those commodities, they are NOT the biggest reason behind the current prices.
Commodities are traded in US Dollars. Oil is priced in US Dollars. Do you think that the OPEC nations are going to take a pay cut because of our currency problems? No, they will simply demand more Dollars to make up for our currency’s decline in value. Our monetary and fiscal policies have contributed about $40/barrel in the current run up in crude prices.
Regardless of what the people at CNN at tell us, ethanol has a positive energy balance. The studies that show that it doesn’t are using 140 bu/acre corn yields and other factors that are not accurate when it comes to the current production practices of modern grain farmers. People also forget that when ethanol is made 1/3 of that bushel of corn is going back out the door as cattle feed in the form of distillers grains. It is a high protein feed that many cattle feeders love to feed along with corn, and corn silage in their rations.
Our country has a dangerous addiction to crude oil. With the oil prices where they are right now it won’t be long before our economy is in a severe recession, quite possibly a depression because of these prices. We are fighting a war right now because of oil. The largest oil reserves in the world are located in a region of it where people have been killing each other since the beginning of time. We won’t change that. These oil reserves are controlled by people who are off the reservation when it comes to their theological beliefs. Ever since there was a god they have been killing in his name. The reason we have troops in the Middle-East is because of oil. There are other regions of the world with genocide and other atrocities being committed every day. Why do you think we are not in those countries? Because there is no oil there!!! With the current oil prices look at what countries are getting absolutely filthy rich; Saudi Arabia, Iran, Nigeria, Venezuela, and Russia to name a few. The feelings towards America by these countries are not exactly friendly. I can’t even fathom the war that would take place if say Iran and Venezuela wanted to attack us. With today’s weapons technology it is conceivable that we could see a nuclear attack on US soil. It is so frightening most American’s don’t even want to think about it.
The ethanol industry is good for America, not just the farmer. Every dollar spent on ethanol instead of gasoline is one less dollar going overseas. It puts money in the farmer’s pocket and which is then circulated through our economy, not the economies of foreign nations. Ethanol plants employ local people in areas of the country that are getting hard pressed for good jobs. Grain companies, machinery companies, fertilizer companies along with a lot of other business are doing very well now because of the current economics of grain farming.
Corn ethanol is not the sole answer to our energy independence by any means. But, I believe it is a step in the right direction. I believe a combination of alcohol fuels (corn, sugar, cellulosic), oil synthesized from coal, and more domestic drilling are all needed to combat this problem. I won’t say that there has been no impact on food price from ethanol. But, I believe it is a very small influence. The American farmers are very good at what they do. Production Agriculture is only thing left that America still does better than anyone else in the world. The ingenuity of the farmer along with advances in technology will allow us to continue to produce larger and larger crops over the long run. We will not burn up our food, like the news media would like us to believe. But, maybe America has been a little spoiled lately in that we can all afford to eat for less than 10% of our income. I think maybe we need to pony up a little more and keep more of the money in America.