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.”
Your comparison to the pre WWI days is not realistic. The usage of hay was market driven, not mandate driven. When hay was eclipsed by tractors and oil, the land usage shifted. In addition, the country was much smaller then and farming methods were obviously much different. I do not place any value in such a comparison.
We have massive government interference in the energy business. This interference looks permanent. This massive interference makes me pessimistic about the future price and supply of energy. Any industry shielded from competition by permanent massive subsidies and mandates will be non competitive in the long run.
I disagree with your one line assessment of the biofuels debate. Here is my one line summary:
“Provide the alternative energy industry with permanent massive subsidies and mandates and it will produce a boondoggle.”