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BE CAREFUL WHAT YOU WISH FOR
Of all commentaries that we have ever written, those dealing with ethanol and the subsidies that they enjoy have been our most controversial and have generated the most criticism from readers. It seems that our anti-ethanol comments in early 2007 were the most criticized. It is more than a little ironic that this was also one of the several times we warned our readers about the coming rise in food prices...and look what has happened in just fifteen months.
May I include an excerpt from our commentary written on January 26, 2007?
"GLOBAL AGRICULTURE WILL CHANGE DRAMATICALLY IN COMING DECADES
Theme #1: Much more food will be consumed per capita in coming decades.
Wealth creation in the emerging world will change global eating habits. More costly foods will be consumed by those in emerging countries as they grow in wealth.
They will eat more vegetables and grains, and they will eat more meat. The increased consumption of meat will dramatically increase the global consumption of grains. Feeding an animal, to later eat the animal, requires many times the number of kilos of gains to produce a kilo of meat protein. Vegetarian cultures consume much less food per capita than meat eating cultures. In our opinion, the percentage of meat in world diets may expand dramatically in the coming decades. This is bound to increase the demand for and the cost of food globally.
Theme#2: Global energy policies will consume grain to create energy, which will further increase the cost of food and create inflation.
The U.S. initiative to promote the use of more ethanol, in our opinion is an unwise policy for the economy, and for U.S. citizens' tax bills. It is however, very popular with politicians and farm state voters. The U.S. presidency and most of Congress will stand for election in late 2008, and the campaigning is already underway. Part of the campaigning is focusing on ethanol as a substitute for gasoline.
The obvious beneficiaries (many of which have risen in price) are fertilizer manufacturers, farm equipment makers, ethanol refining equipment makers, those who construct ethanol refineries, companies that transport and store grains and ethanol, as well as those who grow the grain. Grain prices will head higher as soybeans and other animal feed products will be demanded to substitute for the corn supplies that are raw materials for the manufacturing of ethanol.
Those likely hurt by the shift are: U.S. taxpayers (big handouts from taxpayers' wallets), oil producers (as the tax breaks formerly going to oil companies may be transferred to ethanol producers). The ethanol production will be subsidized. As we have written in the past, this is costly and unwise, even if it is politically popular."
(End of excerpt from January 26, 2007)
AS PEOPLE ARE LEARNING, HIGHER FOOD AND FUEL PRICES ARE CAUSED BY UNWISE PROGRAMS
It now turns out that consumers of fuel are now seeing the lack of wisdom in the policies, and all manner of groups from consumers to manufacturers and transportation companies are being greatly disadvantaged solely to pander to farm states, which had a big role in the primary election process.
It is pretty simple, when gasoline and diesel prices rise, all your costs are likely to rise. Transportation (of materials to production facilities...of products from production facilities to market...and eventually to the consumer) is a big cost component in the prices of almost all goods. Travelers pay more to travel, and eaters pay more to eat.
Ethanol has always been a politically motivated program and now people are experiencing firsthand why ethanol is a flawed and expensive alternative energy modality. Nuclear, solar and wind are all superior technologies. Even natural gas (CNG) is a better automotive technology.
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