The Price Relation Between Beer, Barley, Corn, Ethanol and Tortillas

The Denver Post reports that beer prices are rising faster than inflation. Expect it to increase even more by next year. Farmers in Washington State along with those in Idaho, Montana, Minnesota and North Dakota are partly to blame – they have planted 22 percent less barley than last year.

Barley is a key ingredient in making beer and the price of barley has gone up 48% since last year. The impact on beer prices is just starting to show up now since barley contacts usually are bought a year in advance.

Farmers are planting less barley because the expanding market for biofuels like E85 composed of 85% ethanol are driving up corn prices. The Denver Post reports the price of corn futures up 49% since December 2005.

But its not just beer prices that are affected by America’s gluttony for driving. The lack of foresight and action by Bush to raise fuel efficiency standards on cars and trucks to reduce America’s need for more fuel, combined with a push for biofuels, has resulted in increased competition for corn. The push by Bush to switch from gasoline to biofuels is not the answer to America being hostage to foreign oil.

Producing ethanol from corn comes at a price. And its more than just beer. Gwynne Dyer, an independent journalist in London writing in the Toledo Blade on July 10, 2007 notes that the increased use of corn for biofuels is raising food prices worldwide and will mean starvation for more of the world’s poor.

Dyer notes that “the mania for

“bio-fuels” is shifting huge amounts of land out of food production. One-sixth of all the grain grown in the United States this year will be “industrial corn” destined to be converted into ethanol and burned in cars, and Europe, Brazil and China are all heading in the same direction.
The attraction of bio-fuels for politicians is obvious: they can claim that they are doing something useful to combat emissions and global warming (though the claims are deeply suspect), without actually demanding any sacrifices from business or the voters. The amount of US farmland devoted to bio-fuels grew by 48 percent in the last year alone, and hardly any new land was brought under the plough to replace the lost food production. In other big bio-fuel producers like China and Brazil it’s the same straight switch from food to fuel. In fact, the food market and the energy market are becoming closely linked, which is very bad news for the poor.”

Dyer is not the first to question the rush to biofuels. Lester Brown of the Earth Policy Institute is an early critic of what he calls the “ethanol euphoria.” In testimony before Congress last month he stressed that

“The escalating share of the U.S. grain harvest going to ethanol distilleries is driving up food prices worldwide. Investment in fuel ethanol distilleries has soared since gasoline prices jumped at the end of 2005. Once completed, distilleries now under construction could double U.S. ethanol output, turning nearly 30 percent of next year’s U.S. grain harvest into fuel for automobiles. This unprecedented diversion of the world’s leading grain crop to the production of fuel will affect food prices everywhere, risking political instability. “

Brown very succinctly sums up the impending problem with biofuel from corn:

As more and more fuel ethanol distilleries are built, world grain prices are starting to move up toward their oil-equivalent value in what appears to be the beginning of a long-term rise.
The food and energy economies, historically separate, are now merging. In this new economy, if the fuel value of grain exceeds its food value, the market will move it into the energy economy. As the price of oil climbs so will the price of food. If oil jumps from $60 to $80 a barrel, you can bet that your supermarket bills will also go up. If oil climbs to $100, how much will you pay for a dozen eggs?
From an agricultural vantage point, the automotive demand for fuel is insatiable. The grain it takes to fill a 25-gallon tank with ethanol just once will feed one person for a whole year. Converting the entire U.S. grain harvest to ethanol would satisfy only 16 percent of U.S. auto fuel needs

Which gets us back to fuel efficiency standards for cars – Brown notes that there is a simple answer:

“A rise in auto fuel efficiency standards of 20 percent, phased in over the next decade would save as much oil as converting the entire U.S. grain harvest into ethanol.”

I suggest you tell your Senators and Representative what you think we should do. They are currently considering and debating new fuel efficiency standards for cars and light trucks.

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