Easier said than done. I'm quickly realizing that politics sneak into every aspect of our lives. Last month, I covered the food versus fuel debate, and viewed it from numerous perspectives - economical, market, and environmental - but did not at any point discuss the political implications behind the debate.
A recent conversation with Dr. Thomas Elam, president of FarmEcon consulting firm, revealed to me a side I never even considered.
Dr. Elam pointed out that we are in the midst of an unprecedented occurrence - extremely volatile crude oil prices have become the controlling factor behind the price that animal protein producers have to pay for animal feed (corn and soy). Translation: poultry and meat producers are up against what might prove to be insurmountable feed costs.
“So ethanol and biodiesel are innocent?” I naively asked, knowing full well what the answer would be.
Rising crude oil prices affect gas/diesel prices. High gas/diesel prices affect the value of ethanol/biodiesel. Which brings us back to the familiar food vs. fuel debate. As ethanol and biodiesel production increases, corn/soy prices do as well. This drives up the cost to animal protein producers, which then leads to higher food prices.
Because economics are not my forte, I think of it this way: consider a group of cars driving in a circle. If just one car hits the brakes, they are all going to feel an impact. Doesn't matter which car it is, or for what reason it stopped. Any one factor in the oil/gas/alternate food/raw material chain can affect the others.
Enter the politics. Dr. Elam pointed out that the connection between the energy markets and basic raw materials going into food is heavily influenced by government policy contained in the 2007 Energy Independence and Security Act signed by President Bush last December. The act spells out continued subsidies for biofuels in the form of tax credits, and also has some very large usage mandates for corn-based ethanol and biodiesel for the next 15 years - mandates that Dr. Elam says we cannot meet without reducing the amount of raw materials available to the food sector and raising the cost of food significantly.
“This policy is forcing something onto a biological system that is incapable of producing what you are telling it to produce,” said Elam.
If this argument is true, it makes food versus fuel a political problem, not a market problem or energy problem. Which means it will take a political solution to fix it. Opponents to the Energy Independence Act will need to invest a lot of money and time, in order to better organize their lobby program and campaign.
“What's going to happen if this doesn't occur?” I asked.
Elam pointed out that the companies that are producing chicken, pork and beef have never had to deal with this kind of raw material cost volatility. And he worries that these animal protein processors are not well-equipped to handle the shift in prices.
Poultry processors are already reporting losses. The recent bankruptcy declaration by industry giant Pilgrim's Pride may just be the tip of the iceberg.
“We are facing sharp reductions in the amount of poultry that will be produced in 2009,” warned Elam. End results could be as drastic as empty supermarket shelves and restaurant closings, he said.
So what's the solution? “As long as we insist on high fuel mandates, and we subsidize the use of corn/soybean oil for them, there is no solution. We need to reduce mandates to something we can accommodate without putting so much stress on the system,” said Elam.
This had me thinking - as long as we are re-writing government mandates, why not shift the subsidies towards something that would appease both sides, such as alternate feedstock research and biofuel producers who are making an attempt to abandon corn and soy altogether?
Dr. Elam agreed that the suggestion does hold merit - however, the situation is one that needs immediate attention and still hinges on a large political shift.
It appears that time will definitely tell the seriousness of the situation. Our incumbent president will be greeted at the door of the White House with more political issues than one could imagine. It also appears that contrary to what I had hoped, food vs. fuel may be one of those issues.