18 April 2008

Bioenergy is Actually Reducing the Cost of Food

The costs of food today are high mainly due to the high cost of energy. The only way to reduce the cost of energy is to economically make energy more plentiful. Since most of the world's oil is under the control of dictators who have no interest in reducing the cost of energy--since they are getting wealthier every day based on high energy costs--the world must look elsewhere for new sources of energy. Bio-energy stands as one of the more immediate and expandable sources of new energy.
A Merrill Lynch analyst recently noted that oil and gasoline prices would be 15 percent higher than they are now without the use of biofuels (subscription).
The fashionable "lynch mob" attack on biofuels resembles the "holy warmer" approach to climate in overall hysteria and irrationality. The deeper fundamentals of the problem clearly highlight high petroleum prices as the overwhelming cause of higher food prices. Bio-energy, on the other hand, is one of the long term solutions to the problem.

The only way to reduce energy costs to farmers, food wholesalers, and shippers, is to provide more energy. Bio-energy is still a young industry, with many obstacles to overcome. If it can survive the current hysteria to grow into the regional powerhouse it is capable of becoming, many bio-rich areas of the world will find themselves beneficiaries of a prosperous new industry.

New Texas A&M PDF report detailing underlying reasons for higher food prices (PDF)
From the executive summary:
The underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100 per barrel oil.

With rising energy costs, corn and other commodity prices would have to increase. Rising fertilizer costs led to a 3 million acre reduction in planted corn acres in the 2006-07 crop year. Higher production costs will continue to pressure acres.

Speculative fund activities in futures markets have led to more money in the markets and more volatility. Increased price volatility has encouraged wider trading limits.

Much more in full PDF report.

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Blogger CarlBrannen said...

Great to see you writing this. I'm VP engineering for an ethanol plant being built in Washington State and it rubs me raw to see biofuels blamed for everything that is wrong in the world.

I haven't read the rest of your posts, but another thing you might mention is the relative size of the biofuel, farm, food, and transportation sectors of the economy. For ethanol from corn to cause inflation would be the wart on the tip of the tail wagging the whole dog.

Friday, 18 April, 2008  
Blogger al fin said...

Thanks, Carl.

You make an excellent point about the relative size of the corn markets for biofuels, livestock feed, human food, etc.

I have posted related information, but I'll try to locate stats or graphs to illustrate that very point.

In general, this blog promotes the use of biomass to liquid fuel using thermochemical processes. But it is certainly true the bioethanol has suffered unfairly from some very sloppy economic analyses.

Friday, 18 April, 2008  
Blogger SwampWoman said...

As somebody who has just paid an additional $1.50 per 50-lb. bag of feed corn on Friday (prices are inceasing monthly), I can confidently predict that food prices (milk, eggs, farmed fish, meat products) are going to continue to be adjusted upwards to reflect the increased prices of feed and transportation.

Of course, I can also confidently predict that all food prices are going to continue to increase to reflect increased transportation costs/fertilizer costs/planting and cultivation costs.

The prices that farmers/ranchers are getting for livestock do not reflect the vastly increased costs of the inputs (although you'd not know that from looking at the meat case at the grocery store) so I'm surmising that a lot of livestock growers are getting rid of everything they possibly can to reduce feed costs which will lead to a shortage of slaughter animals in the future.

Saturday, 19 April, 2008  
Blogger al fin said...

Good point, SW. The Texas A&M report in the article discusses all of those issues, including the squeeze that livestock growers are being put in.

I might add that bio-ethanol producers such as commenter Carl above are being put in the same type of squeeze.

Between now and the next few years when cellulose to alcohol is practical, bio-ethanol producers are going to have to be extremely resourceful in every process of their operations. That means they will have to substitute cheaper fuels for distillation, get more useful products out of the maize, and find a market for the dried distiller's grains byproduct.

Those ethanol producers who can't find resourceful and efficient methods stand a good chance of dropping out of the business.

Saturday, 19 April, 2008  
Blogger Larry Sheldon said...

Does this analysis account for the taxpayer-subsidization of the biofuelss? What if that cost is factored in?

Saturday, 19 April, 2008  
Blogger al fin said...

Good question, Larry. You may want to do some research on that yourself.

In the US, everything is taxpayer subsidized in one way or another--especially farmers, but also oil companies. Comparing different ventures on the basis of taxpayer subsidies can be quite tricky.

I posted the PDF for the Texas A&M study within the article above. If you have not read that report yet, you may wish to.

Saturday, 19 April, 2008  

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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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