Ethanol Boom Study Vs. Corn Prices
Two critics of ethanol at the University of Minnesota have published a study in the May/June issue of Foreign Affairs contending that the ethanol boom will lead to world hunger (Yahoo! short term link, Gulf Daily News perma link
“In the United States, the growth of the biofuel industry has triggered increases not only in the prices of corn, oilseeds, and other grains but also in the prices of seemingly unrelated crops and products,” they ( C. Ford Runge and Benjamin Senauer) said.
The timing is a bit bad, considering this Bloomberg story:
Corn fell to a four-month low in Chicago and soybeans declined on speculation lower energy prices will reduce demand for fuels such as ethanol and biodiesel made from the two biggest U.S. crops. ...Prices have fallen 23 percent since reaching a 10-year high of $4.5025 on Feb. 26, on expectations that U.S. farmers will plant the most acres since World War II (emph. add).
Academics don’t understand the free market. I’m not sure if it is because they are not subject to it, being shielded by the tenure system and teaching unions, or if it’s due to something else.
The free market is a pretty cool thing. When ethanol started pulling corn out of the food supply, it drove the price of corn up. Farmers responded by planting “the most acres since World War II.” Now the price of corn is falling because supply has outstripped demand. A similar thing happens with petroleum – although the market is somewhat tempered by OPEC. Oil demand goes up, driving up prices. The price makes some oil fields and technologies viable, thereby adding to a market where the producers are already flooding it to get the most cash they can get. Meanwhile, demand slackens as people stop buying Hummers and flying cross-country on their personal jets (Speaker of the House Nancy Pelosi excepted). Eventually the supply outstrips the demand and prices fall.
No handwringing necessary – although I suppose the above reality doesn’t make for good studies that make it onto Yahoo! news.
I agree with the authors that ethanol subsidies need to be phased out. I even agree with their push for conservation and…
promoting alternative sources of energy, such as solar and wind power; and investing in research to improve agricultural productivity and raise the efficiency of fuels derived from cellulose.
However the cellulose tech isn’t there just yet, but it will be once the industrial world ends its oil addiction. How? Someone will develop a process to make ethanol from stuff that’s plentiful and cheaper than $4/bushel.
This study seems like shallow pandering to the Environmental Alarm crowd. It completely fails to recognize market forces as well as the technological innovations that have made every Malthusian prediction wrong.
University Update:
Ethanol Boom Study Vs. Corn Prices
3 April 2007, 7:12 pmTom:
Academics do understand the free market. That is why they speak out against it so much. They are fearful the free market will intrude upon academia, rendering the garbage they produce worthless. Wouldn’t it be great to force the intellegentsia to compete in the marketplace of ideas?
4 April 2007, 5:10 amAdministrator:
Tom
Given the cost of college these days, and the facts that graduates face when they enter the workforce – high debt load, global competition – I’m beginning to wonder what the purpose of college is.
I haven’t given up on kids – quite the opposite; I recently ran into some University of Delaware seniors who seem to be prepared for the workplace they will enter this summer.
Still, it seems to me that they’ve come out of the system okay in spite of their professors.
Oh well… I did the same thing a while back…
4 April 2007, 5:28 amhow to make biodiesel:
how to make biodiesel
Nice arrticle can I use this for my blog as a trackback? gr, Remcowoudstra
12 May 2008, 2:32 pm