Sunday, January 28, 2007
Food and Fuel: A Growing Interdependence
by
According to a recent UPI-Zogby poll, over two-thirds of adults in the U.S. say they are paying too much for gas. This is surprising considering the poll was taken a few weeks ago when gas prices were relatively low. It also seems astonishing in light of what others pay for gas around the world (see CNN story on global gas prices).
The cost of fuel has an economic, political and marketing component that makes it difficult, but not impossible, to understand (see How Gas Prices Work). However, there is a new variable to the equation that threatens to disrupt the pricing economics for fuel and agriculture. A Business Week article this week titled Food vs. Fuel, details the considerable effects of the corn-as-food and corn-as-fuel (ethanol) conundrum. As more crops are diverted from food production to biofuel production, there could be significant global repercussions. In the recent State Of The Union address, President Bush called for an increased focus on ethanol and other biofuels to wean our dependence from foreign oil. This will probably put even more pressure on crop prices.
Until recently, two big components of the United States economy — energy and agriculture — were only loosely correlated. It appears those days are over, and America’s thirst for gas will also have a pronounced effect on the agricultural sector.
