Getting what you pay for: food & energy prices

In a relatively recent post, Rich asks how food and energy are different.  His implicit point (and I agree) is that in many ways they’re not that different.  My preliminary thoughts on why escalating food prices haven’t been getting as much press are: 1) oil is “sexy” in the sensationalist media sense of the term, food isn’t “sexy” until we start talking about riots and starving children, 2) the component of rising food prices that is related to rising energy prices suggests an inherent lag - energy prices are leading food prices, and 3) there may be some variation in the degree of regressivity in rising food prices versus rising gas prices.

I expand on number 3 and offer some other thoughts below…

Will droughts make for expensive draughts?

By now, most of us have heard about ethanol and its impacts on beer prices. As farmers dedicate more land to growing high-priced corn, they also dedicate less land to hops and barley. Now it is likely that this substitution effect will be/is being exacerbated by climate change as well. From MSNBC:

Jim Salinger, a climate scientist at New Zealand’s National Institute of Water and Atmospheric Research, said climate change likely will cause a decline in the production of malting barley in parts of New Zealand and Australia. Malting barley is a key ingredient of beer. “It will mean either there will be pubs without beer or the cost of beer will go up,” Salinger told the Institute of Brewing and Distilling convention…Similar effects could be expected worldwide, but Salinger spoke only of the effects on Australia and New Zealand. He said climate change could cause a drop in beer production within 30 years, especially in parts of Australia, as dry areas become drier and water shortages worsen.

This drought-induced price spike would perhaps mitigate or reverse some of the aforementioned substitution toward corn as barley prices become competitive for farmers again. However, as Salinger notes, the beer supply curve is likely to shift in at least initially until farming patterns change or the industry adapts to new varieties of malting barley.

Salinger is spot on when he points out the tradeoff between a price increase and a shortage. Let’s learn a lesson from the oil crisis of the late 70s. If that event taught us anything, it’s that a price ceiling would likely lead to the horrifying beer shortage that Salinger predicts. We’d have to endure a period of beer rationing: odd- and even-numbered license plate numbers birthdays alternate beer drinking days, and everyone rests his/her stein on Sunday (only wine allowed) to round out the seven-day week. I can see it now: mile-long lines outside bars, groceries, and liquor stores, each person waiting to take home their weekly 6-pack allocation.

More likely, we’ll just have to bear with the higher beer prices that come with the new supply schedule, at least for a while. Luckily, this development will not be as regressive as high fuel prices, as the cheapest beers (mmm…PBR) use far less hops and barley than most craft beers. Still, it’s unfortunate that as the planet warms, it’ll be harder than ever to find a cold beer.

Evan’s family is cleaning up

While the rest of us are being forced to DRINK LESS

From Greenwire:

Corn prices — already up 30 percent this year — yesterday jumped to a record $6 per bushel on the Chicago Board of Trade….Worldwide demand for corn to feed livestock and produce biofuels is putting enormous pressure on global supply, and with the U.S. planting less corn this year, the supply shortage will worsen….Corn growers are reaping record profits……

Couple things. First, why is that I can’t turn on the news without hearing, invariably in very tragic terms, about soaring gasoline prices, yet there is almost no coverage of soaring food prices? According the the BLS, American’s spend about 3X as much of their income on food as they do on gas.

Second, in light of the “record profits” being reaped by corn growers, how long until Ed Markey hauls these greedy farmers before Congress? Let’s just say I’m not gonna hold my breath. Until then though, anyone care to explain to me how these two commodities are different?

Ethanol Sentence(s) of the Day

A new USDA study regarding cellulosic ethanol has been widely reported, but I gleaned the information from ScienceDaily. It was the first study to examine the lifecycle emissions of switchgrass-based ethanol in the context of mechanized farming techniques.

The researchers then used that information, together with a model that calculates the amount of ethanol that can be produced per kilogram of switchgrass, and found that the switchgrass could provide 540 percent more energy than went into producing it.

Using high-input agricultural techniques instead of low-input prairie planting, yields per acre went up 93 percent. A major caveat of the study is the fact that no commercial-scale cellulosic ethanol plant exists. Thus, the 540 percent number is partially based on estimates drawn from lab tests and pilot-scale plants. In that vein, the DOE has six full-scale cellulosic demonstration refineries in the works:

The U.S. Department of Energy announced last February that it will spend up to $385 million to partially fund six cellulosic ethanol refineries. In November construction began on the first plant, the Range Fuels biorefinery in Soperton, Ga., which will produce ethanol from wood waste.

You know, now that a certain state (that shall remain nameless) has voted in its disproportionately influential primary/caucus, it’ll be interesting to see whether direct subsidies to corn ethanol will fade to the background of the Presidential candidates’ energy planks in favor of other more efficient policies, such as carbon pricing and R&D funding.

Image of the day

Corn and Pork. From the Energy Roundup. Evan, I hope I haven’t offended you……