Mary Kissel writing in the Wall Street Journal (WSJ) looks into what C. Larry Pope, the chief executive of Smithfield Foods, Inc. is saying about the price of food and his effort to paint fuel use of agricultural products as a prime culprit for the increase in meat prices.
Before we start, the Wall Street Journal has taken the view that ethanol for fuel is a bad idea and generally stands against ethanol as fuel and the policies government has used to increase ethanol’s role in the gasoline market. Biased for certain, the WSJ is informative if the reader is informed. There is much more to this than the price of bacon, which Ms. Kissel uses for the opening illustrative narrative.
Kissel does an exemplary job of explaining the food view particularly as it applies to food. Actually the facts are not really something for dispute. Between the lines of Pope and Kissel’s explanation is the compelling reality is there are more people than ever with enough money to buy meat products. Keep in mind that meat products are the top of the food chain, plant products are consumed by critters and people consume the critters. This is not a potato and tomato price issue. Meat for people is the eagle’s point on the food chain – protein is a product of metabolism from carbohydrates – it takes much more land to get a gram or ounce of meat protein than the same weight in carbohydrates. That weight is also much more valuable in nutritional content.
A lot of American corn territory and quite a lot of Brazilian land is committed to producing fuels. (The U.S. ethanol market returns the high value nutrition of corn back to the world meat production market.) Between the two a lot of crude oil use is avoided. The U.S. is nearing a million barrels a day of ethanol production with Brazil approximately at half that production rate. Between the two countries nearly 90 percent of world ethanol production is accounted for.
For general purposes one could credibly say about 1.5 million barrels of world crude oil use is avoided.
Those are the noisiest points of view on the food and fuel issue. There are many others of interest as well. Food commodities and fuel commodities are world markets. For a site where the main issue is energy and fuel, food is the same – food is direct to people fuel while fuel is an indirect people fuel. Take away food and hunger would ensue, take away fuel and hunger would ensue. The two are one in the whole view.
All points of interest have merits and demerits, but what is of greatest interest is the calculation in the middle of it all – what can people afford to consume? Everywhere people have to choose what part of their money goes to a food budget and what goes to a fuel budget. Unless they grow food themselves, have rich soil, plenty of water and can handle the seed and reproductive challenges, they will buy fuel in the price of the food.
The idea that everyone across the planet would be a subsistent farmer again is an incredulous concept – people won’t go back to perceived poverty by choice. Nor is the skill set needed for survival current knowledge across billions of people. So we expect from the choice of food and fuel, or only food, virtually everyone is going to choose to use both.
The big question then is what are the consequences of taking ethanol out of the fuel market and putting all the productivity into food? Oil and gasoline prices will soar.
The back of the napkin speculation might take bacon prices back down maybe a quarter or a third, but gasoline might go up a third or a half, perhaps even more. A family spending $100 on meat in a month might save $30 in the food budget but might spend from around $200 per month on gasoline to more like $300 or maybe $400. Which would a family choose?
When one calls upon one’s character to view the food nexus within all the competing points of view the consequences of taking out ethanol is a disaster of incredible proportions. The economic contraction would be economy wide with financial stresses to compare with or perhaps even exceed the banking crises of a couple years back. Bailouts from farmers to banks and one of the longest lists of participating businesses would dwarf the bank bailout. Add in layoffs and all the other impacts. It’s no wonder no one of note has done that kind of study.
Or try the same on the fuel nexus without ethanol. Again the market disruption would be cataclysmic.
Perhaps it’s safer for people to just have the special interests baying at the situation trying to get a little better advantage.
This is the one thousandth post here at newenergyandfuel.com A thousand posts ago the point was and still is to maintain and improve the living standards of everyone. Mucking up the status quo for ethanol in a major way isn’t any kind of a good idea.
Ms Kissel mentions the lawyer ready kick Pope when his comments get too far off point. Pope is representing a special interest and there can be risks in that. The WSJ itself has gone lazy and skips past the impacts their chosen golden policy position would have on the economy – a major disappointment of the world’s leading newspaper.
Everyone overlooks the economics; there are more people, who are freer, working towards more wealth participating in a larger economy. Everything, including food and fuel needs to be more, better and cheaper. When basic parts of the economy aren’t coming more, better and cheaper there are problems, which is where we are today.
That’s the issue, governments and industry have lost focus, become distracted and miss the issue for making better living standards. The only solution has always been, is and will be so long as there is intelligent life, more, better and cheaper.
Which raises the question, when was the last time you heard any government talk about supporting the economy with more, better and cheaper of anything or everything?
What’s on the back your napkin? Add your comment on where more, better and cheaper has gone.
By. Brian Westenhaus