16.3.08

THE RESPONSIBILITY FOR OPPORTUNITY COSTS. Rising costs properly, are evidence of substitutions everywhere.
Exactly one year ago National Turkey Federation president Ted Seger told the House Agriculture Committee that the federal ethanol mandate would drive up corn and soybean prices and hurt consumers who eat turkey.

There have long been tax breaks to encourage production of ethanol, and last year President Bush signed a law mandating a substantial increase in the use of renewable fuels, principally ethanol, over the next 15 years.

At the Annual Meat Conference this week, a gathering of retail meat industry, economist Tom Elam reported his estimate that the ethanol mandate would result this year in each chicken raised by an American farmer costing 53 cents more to raise than it would have cost without the mandate. As for turkeys, well, it'll cost the farmer $3.40 more to raise each one.The responsibility rests with consumers.

As Federal Reserve Chairman Ben Bernanke explained to the Senate Banking Committee last month, “a significant portion of the corn crop is being diverted to ethanol, which raises corn prices.”

And he added, there are “knock-on effects. For example, some soybean acreage has been moved to corn production, which probably has some effect on soybean prices. So there is some price effect on foodstuffs coming through the conversion to energy use.”
The hogs are happy.
But senators and governors from the ethanol-producing states defend the tax incentives and mandates that have led farmers to divert more land to corn, and more corn to ethanol.

Minnesota Gov. Tim Pawlenty, a Republican, said, “What we have now (corn-based ethanol) is going to be viewed as early stage, and what’s coming is going to be much better. And what’s coming is cellulosic ethanol, where you’re going to be able to take not food and make it into fuel, but other sorts of products — it may be corn stalks, switchgrass, woody pulp material, or other things that are not connected to the food chain.”
Perhaps one does not eat these other things, but one could use the land on which one grows such things to grow food instead. Whether one diverts the corn to ethanol, or diverts land that could be used to grow corn for tortillas to growing switchgrasses, one is changing the opportunity cost of an ear of corn.

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