Biofuels Are Not the Answer
May, 2008 , By Pete Moss
Frazier, Barnes & Associates
On the other hand, they are not the problem. There is so much hysteria, misinformation and outright fabrication of evidence that it is almost impossible to know where to start. So why not start with the facts? Biofuels were never supposed to be “the” answer to our nation’s energy problems, they were supposed to be a component of our “energy strategy” and a way to reduce our dependence on foreign oil. In many ways, they are cleaner and more environmentally friendly. In fact, they were originally part of a strategy to add value to the crops that our farmers produce. That strategy has worked well.
But before you start blaming biofuels for our economic and energy problems, maybe you should consider a few facts. Sixty years ago in 1948, corn was around $1.25 per bushel and oil was around $2.50 per barrel. In the past sixty years, corn has gone up in value four fold, to around $5 per bushel, while oil has gone up forty fold, to around $100 per barrel! Today it is $125! According to Robert Zubrin in his book Energy Victory, “This year, with OPEC-rigged oil prices exceeding $100 a barrel, the U.S. will pay $800 billion for its oil supply, and the world as a whole will pay $3.2 trillion. These figures are both up a factor of 10 from what they were in 1999 and represent a huge regressive tax on the world economy.” Agricultural commodity prices, however, rise and fall in volatile fashion regularly because of simple supply and demand economics. One thing that has always proven to be true, U.S. agricultural producers have an incredible ability to overproduce when given the incentive.
Technology also plays a huge role in commodity pricing. In 1947 the average corn yield was 28.6 bushels per acre. In 2007 it had risen to 151.1 bushels per acre. It is expected to climb at an even greater rate with the advent of biotech crops and new technology that improves nutrient utilization. So before we start considering abandoning what could easily be 10% of our gasoline requirements over the next two years, maybe we should step back and take a look at the broader picture.
We produce about thirteen billion bushels of field corn each year, not for food use, but for things like livestock feeding, ethanol production and exports to other countries. A $2.00 per bushel rise in the cost of corn results in a $26 billion impact to our economy. That $26 billion stays in America and bolsters our rural communities with very little negative consequence to food prices. We also consume 140 billion gallons of gas and 65 billion gallons of diesel fuel each year. A $2.00 per gallon increase in the cost of gas results in a $400 billion impact to our economy, or about twice the amount of the recent economic stimulus package. The economic stimulus package won’t even pay for half of the increased cost of our fuel! What is even worse, is that a large percentage of that $400 billion is going to the Middle East and not being reinvested in the U.S. Are you beginning to understand why the value of the dollar is falling?
Focusing on demand for a moment, developing economies like China and India are having a dramatic impact on food and fuel prices. We’re not talking about hundreds of millions of people, we’re talking about billions. Although their labor costs are low, their standard of living is rising quickly and their demand for fuel and higher quality food is also increasing. Thus, whatever money we have leftover from what we send to the Middle East, we are sending to China so that they can drive better cars and have better diets.
Biofuels have never been touted as the answer to all of our problems. You have to admit, the growth of the industry has been nothing short of phenomenal. Unfortunately, there is no “Silver Bullet.” We must reduce consumption, increase domestic production, increase nuclear, wind and solar energy. We must produce more flexible fuel vehicles and continue to build our infrastructure. We must develop a cohesive Energy Policy and stick with it without wavering because of the volatility of commodity prices. We absolutely have to take control of an economic future that relies heavily on energy costs. It costs more than $60.00 to fill up an eighteen gallon tank of gas, but Wendy’s still has a 99¢ value menu. Let’s not lose sight of the real problem!
Pete Moss is the President of Frazier, Barnes & Associates, a technical and market consulting firm based in Memphis, Tennessee. He has twenty years of industry experience in agricultural processing and marketing, banking, energy and renewable fuels. He has been involved in the biodiesel industry since its inception and is a frequent speaker and moderator at biofuel conferences. Contact: fbapete@frazierbarnes.com or www.frazierbarnes.com
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