I appreciate your thoughtful reply especially revealing your bias. Other ethanol supporters refuse to reveal their biases. You are correct that exaggeration exists on both sides of the biofuels debate. Food prices are affected by a variety of factors. Traditionally weather has been a major influence in food commodity prices. Government interference in commodity markets has long been a factor also. Increasing demand due to advancement of developing countries will become an important factor driving future prices. Establishing the cause for the recent increase in food commodity prices is subject to debate. There are a variety of factors of which ethanol mandates are one part. Markets can have non linear behavior in the short run. One additional factor such as mandates or unexpected weather can cause a sharp change in prices.
I disagree with your assessment that biofuel mandates will not drive up food commodity prices in the long run. Biofuel mandates have the potential to substantially increase food commodity prices. On the other hand, depending on the nature of the future biofuels development, the price increases may not be substantial. I rate the potential for future price increases as high due to the permanent nature of the substantial mandates. We have never relied on agriculture to provide both food and fuel. I think it is terrible policy to impose huge biofuel mandates when the economic consequences of these mandates are unknown.
In my mind, the recent energy bill was just a central plan doomed to failure. The market should determine the proper mix of fuel sources, not politicians. Any industry provided with these levels of mandates and subsidies will become bloated and inefficient. I see the energy bill as permanently shielding the alternative energy market from competition.
I agree that biofuels will drive up some particular commodity prices in a limited time frame.
What I don’t agree with are these henny-penny projections that “we’re burning food” and “people are going to starve” as a result of this. I look at all these things through a long term, historical trend lens, not the news of the moment.
First, the commodity cycle I mentioned previously. Right now is a great time to be a farmer. 10 years from now, it won’t be, because as every American farmer knows, when commodity prices go up, up, up like they are today (and as they did in the early/mid 70’s), American farmers plant with incredible efficacy and there comes the inevitable commodity bust - as we saw from, oh, about 1979 to 1986. As mentioned previously, 1986 was a year that broke farmers (and farm equipment companies) coast-to-coast, as well as cratered the price of farmland.
Today, we’re just seeing a repeat of prior cyclical behavior. Further evidence of the cycle: farm land prices go up after residential real estate prices have peaked in their own cycle. And residential real estate has its own mania following an equities mania.
So let’s go down the list:
1. Equities mania: 1990’s to 2000: check.
2. Equities mania busts: 2001 to 2003: Check.
3. Residential real estate goes up, up, up: 2003 to 2006: check.
4. Commodities go up: Starting in 2000 - check.
5. #3 and #4 together mean that farmland prices go up. Check.
It is all following the historical patterns - which, we should NB, are not magical. There’s no huge mystery here — this is nothing more than repeated human behavior writ large, much like the way we can look at equities booms are nothing more than the Dutch tulip craze with a broker and a phone involved.
The biofuels issue, looked at through a historical perspective, doesn’t look all that new either. We HAVE used ag to provide food and fuel before — at the same time.
Let’s roll back the clock to 100 years ago — just before WWI. Look at how many acres were in production of pasture and hay for horses - both riding horses and draft horses. That hay was the “biofuel” of the day, and horses were the transportation and draft horses the pickup trucks of the day. Millions upon millions of acres devoted to hay production - and those millions of acres shifted production after we went to tractors around WWII. We’ve been here before, and we didn’t starve then. We won’t starve now.
Here’s the whole of the ag debate rolled into one pithy line:
“Show the American farmer a profit, he’ll show you a surplus.”