As our gas prices hover around $3.00 per gallon for regular are we prepared to pay up to $4.50 for a gallon of milk? Haven’t those inside the beltway heard of “cause and effect” diagrams?
Back on March 16th I provided a report from Thomas LaSorda, no, not our Dodger skipper from Fullerton, but the CEO of Daimler Chrysler on fuel economy. In his testimony before the U.S. House of Representatives subcommittee on Energy and Air Quality he did not skirt the issue of the auto industry commitment to increase fuel economy while addressing the environment.
However, as consumers, we are not listening. Many years ago, when I truly worked for a living, I watched an engineering director produce a product to increase efficiency and reduce power demand. While he was toying around in that development we promoted another product to satisfy the market demand. And it didn’t take a focus group to recognize that you need to ask the customer what he or she wants and not engage in guesswork. Our efforts in the later example led to a major increase in the implementation of Ethernet and Cheapernet. The first example never got out of the lab.
Having traveled in Europe last year and just returning from China I personally saw what the major automotive industry can provide with regard to increased fuel economy but we are not interested. We love our Hummer’s and gas guzzling SUV’s.
Unless and until we return to the ’70’s, when I remember waiting in long gas lines at service stations, motorists in America will continue to place their comforts above fuel economy. That said why should the auto industry re-tool to increase fuel economy? They already have achieved that goal. In Mr LaSorda’s testimony he mentions the Smart car which I saw in Rome. The “Smart” city car gets over 40 MPG. In China we saw various models made by the major producers which were all downsized versions.
So, we now promote the biofuel “ethanol” as the panacea to our energy independence. Ethanol is part of a solution however it comes at a price. Last Feb I remarked that “the cost of a bushel of corn used to feed our livestock has doubled from two to four dollars.” That post stated our setting aside 30 percent of this year’s U.S. corn crop for ethanol would “translate into higher prices at the supermarket when we purchase chicken pork and beef.”Fast forward to the following article in the Detroit Free Press. I have edited some of the text as I have been chastised for posting entire print media stories:
http://www.freep.com/apps/pbcs.dll/article?AID=/20070624/BUSINESS06/706240589/1002/
Detroit Free Press
June 24, 2007
Cost of milk kicked up by demand for ethanol
Turning corn into fuel could push price to $4.50 a gallon
BY ALEJANDRO BODIPO-MEMBA
FREE PRESS BUSINESS WRITER
Get ready to pay $4.50 a gallon this summer — for milk.
Gasoline prices over $3 a gallon have grabbed consumers’ attention,
but dairy products and other corn-dependent foods are expected to
rise at an even faster rate.
This is happening because of an explosion in the production of
ethanol, a gasoline additive touted by the president, automakers and
farmers as a way to reduce America’s dependence on foreign oil.
Up to 20% of the nation’s corn crop — 18% in Michigan — is now
being channeled to ethanol production. That increased demand means
the price of corn used to feed cattle and pigs and to make cereals
and sweeteners is going up — 61% between September and May.
Together with the rising costs of wheat and other commodities, corn
demand is pushing overall food prices up 4% this year, compared with
2% a year ago, and driving up the costs of breakfast foods — eggs,
bacon, cereal, milk and potatoes — as much as 10%, according to the
U.S. Bureau of Labor Statistics.
Chris Galen, a spokesman for the Arlington, Va.-based National Milk
Producers Federation, predicts that the price of a gallon of reduced
(2%) fat milk in metro Detroit, which started the year at $2.97 and
is now around $3.08, could spike another $1.50 a gallon by the fall.
“Wow! Are you serious?” asked Danielle Conway, a 33-year-old nail
technician from Detroit who said her four children go through milk
pretty quickly. “That’s ridiculous.”
Veronica Leonard, a 36-year-old attorney and Southfield resident who
paid $1.79 for a half-gallon of milk last week, has noticed food
prices creeping up.
“In the past, you expected meat to be high, but now the staples like
bread, milk and juice are increasing, too,” she said.
Galen said several factors are pushing prices higher.
“When you have high petroleum costs, you have high fertilizer costs,
but the more predominant factor has been the run-up in the cost of
corn,” he said. “That is due almost exclusively by the competition
of the ethanol industry with livestock producers for a finite amount
of corn.”
Ethanol production jumps
Nationally, ethanol production rose from 2.14 billion gallons in
2002 to nearly 6 billion gallons in 2006. Corn to produce ethanol
grew from 996 million bushels in 2002 to 2.2 billion bushels in
2006.
Michigan farmers, who produce 280 million bushels of corn a year,
mirror the nation by committing 18% of their crops to make 213
million gallons of ethanol a year. The proportion of Michigan corn
going to ethanol is expected to reach 35% by 2010.
A study released in May by Iowa State University, paid for by
several food-production groups including beef, pork and poultry
producers, said ethanol production has added $14 billion a year to
U.S. food costs, and predicted the total could reach $20 billion
annually. It said putting more land into corn production — which
some groups consider environmentally risky — would provide only
modest help.
Ethanol, an alcohol-based fuel that is produced from corn, soybeans
and other agricultural products, has been around for 100 years, and
is being blended with gasoline in ratios from 10% to 85%. It was the
first fuel to power Henry Ford’s Model T prototype.
Midwestern farm interests began lobbying in the 1970s for incentives
to produce ethanol as a way to reduce U.S. dependence on oil — and
to create a new market for corn. Persistence and political muscle
have paid off as production has boomed.
Today, ethanol, along with other biofuels, is a key element of
President George W. Bush’s plan to reduce U.S. dependence on foreign
petroleum. He came to metro Detroit in February 2006 to reiterate
his agenda of breaking what he called America’s addiction to foreign
oil by developing more alternative energy sources such as biofuels
in Michigan.
Last week, the U.S. Senate passed an energy package that would
require automakers to build cars and trucks that average 35 m.p.g.
by 2020. The bill, which was passed by a vote of 65-27, provides
incentives for producing 36 billion gallons of ethanol and other
biofuels by 2022.
Ethanol already has a 51 cents-per-gallon federal subsidy, so corn
producers in Michigan and across the country are clamoring to get
into the game.
Farmers hard hit
While it appears that dairy farmers are also doing well as prices
escalate, they insist that they are being hit with higher energy
costs that eat away at their bottom line.
“Farmers are not price makers, they are price takers, and a farmer
doesn’t have a storefront where he sets a price,” sai
d Bob Boehm, a
spokesman for the Michigan Farm Bureau. “Farmers buy pretty much
retail and sell wholesale.”
In the end, consumers at the end of the food and fuel continuum will
end up paying more for milk, beef, pork and gasoline as the summer
rolls along.
“Ultimately it comes down to supply and demand,” said John Dilland,
general manager of the Michigan Milk Producers Association in Novi.
“When corn prices double, that increases the production costs of
milk, because a major portion of dairy farmers’ expenses is feed.”
Larry’s closing comments. We need to consider impacts of these brainstorms on those who do not drive the huge gas guzzlers but feel the pain anyway. And I am not supporting a tax on those who own and drive the SUV’s. Ethanol is only a band aid on a much larger challenge. However the solution must come from those at a higher pay grade than this writer.
Going to get me a stil and brew my own motor fuel.