Free Trade and the Food vs. Fuel debate
The fundamentals of the global oil market don’t look very sweet for customers. We are in short supply, due to political events and refinery capacity, let alone upward pressure on demand, as we enter the summer season. Needless to state, we are vulnerable to the factors that impact the oil market.
One way that energy-independent Brazil has decided to deal with this threat is by switching to alternative fuels. They already use sugarcane-ethanol and it was recently reported that they may soon add coffee beans to their fuel mix. This is an interesting development. I would be interested to know what the yield is (in terms of ethanol) from coffee beans and how Brazil is positioned in the world coffee market.
The background of Brazil’s sugarcane-ethanol fuel economy is interesting. Due to the subsidies to the US producers and European producers, as well as tariff duties levied by both political entities on Brazilian Sugarcane, Brazil has found that they can't compete with Sugarcane producers from those zones; though they are the most efficient at producing Sugarcane ($.04 per cane vs. $0.25 in the EU and the US). So, they have become the world leader in terms of using ethanol to power their vehicles. The last statistic I read was that 85% of their vehicles are powered off of the sugarcane-ethanol. This is one way that they have been able to leverage their strategic resources to become energy independent.
One of the reasons that we have such a problem in the US, with gasoline, is that we don't have enough refinery capacity; a new refinery has not been built in around 30 years, mainly due to capital and regulatory constraints. We are talking about using corn to develop ethanol, but sugarcane yields 8 times as much ethanol than corn. So, one can surmise that our ethanol won't be as cheap as Brazil's. However, it could be a step in the right direction, as we would conceivably be able to reduce our Ag Subsidies to corn; thus making us more competitive in at least one area of Ag. In addition, we would take a step toward energy independence.
Then we run into other gray areas. A supplier would have to make the decision of whether to supply the food market, or the energy market, and given the thirst for fuel, I could see there being a shortage of corn being supplied in grocery stores; thus driving the price up. This is known as the food vs. fuel debate.
So, the next time you hear a politician talking about free trade, keep this in mind. They are only interested in “free trade” that benefits their constituents and “free trade” isn’t always free.
One way that energy-independent Brazil has decided to deal with this threat is by switching to alternative fuels. They already use sugarcane-ethanol and it was recently reported that they may soon add coffee beans to their fuel mix. This is an interesting development. I would be interested to know what the yield is (in terms of ethanol) from coffee beans and how Brazil is positioned in the world coffee market.
The background of Brazil’s sugarcane-ethanol fuel economy is interesting. Due to the subsidies to the US producers and European producers, as well as tariff duties levied by both political entities on Brazilian Sugarcane, Brazil has found that they can't compete with Sugarcane producers from those zones; though they are the most efficient at producing Sugarcane ($.04 per cane vs. $0.25 in the EU and the US). So, they have become the world leader in terms of using ethanol to power their vehicles. The last statistic I read was that 85% of their vehicles are powered off of the sugarcane-ethanol. This is one way that they have been able to leverage their strategic resources to become energy independent.
One of the reasons that we have such a problem in the US, with gasoline, is that we don't have enough refinery capacity; a new refinery has not been built in around 30 years, mainly due to capital and regulatory constraints. We are talking about using corn to develop ethanol, but sugarcane yields 8 times as much ethanol than corn. So, one can surmise that our ethanol won't be as cheap as Brazil's. However, it could be a step in the right direction, as we would conceivably be able to reduce our Ag Subsidies to corn; thus making us more competitive in at least one area of Ag. In addition, we would take a step toward energy independence.
Then we run into other gray areas. A supplier would have to make the decision of whether to supply the food market, or the energy market, and given the thirst for fuel, I could see there being a shortage of corn being supplied in grocery stores; thus driving the price up. This is known as the food vs. fuel debate.
So, the next time you hear a politician talking about free trade, keep this in mind. They are only interested in “free trade” that benefits their constituents and “free trade” isn’t always free.
posted by Sean | 5:47 PM
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