American Elephants

The Worst Drought Since the Dust Bowl, Global Unrest, Expensive Food. by The Elephant's Child

That corn is certainly not as high as an elephant’s eye— at least not any elephants around here. A far cry from what healthy corn is supposed to look like.

In the last five years, rising food prices twice have caused global waves of social unrest.  Drought in the Midwest  is raising prices for corn and soybeans, and commodity speculation could make it worse. Prices here in the United States will be up, but for many nations it can be disastrous. The ongoing drought is the worst since the Dust Bowl and is expected to last until  October. America is the world’s largest exporter of corn, wheat and soy beans and global prices for those commodities have already surged to record levels. There is some rain in the forecast, but it may not be enough.

The exact role that food prices play in unrest is hard to isolate, but the New England Complex Systems Institute (NECSI) has found biofuels responsible for a slow upwards rise in prices, and speculation responsible for the spikes. With drought-triggered price rises, the grim forecast becomes even worse. NECSI has found that the geographical character of violence changed immediately after the price spikes, changing from ethnically localized to widespread. The amount of unrest in the Arab Spring caused by rises in food prices is hard to determine. Experts have said that “In the short run, USDA needs to figure out a way to remove the mandate on ethanol use from corn. If we could free up 20 to 30 percent of the U.S. crop, reduced as it is, it would bring corn prices down very quickly.”

A major contributor to the problems is the U.S. Congress. Agribusiness in 2008 spent $173.5 million lobbying for farmers to become rent-seekers. In the case of the 2008 Farm Bill the recipients of subsidies of $30,000 or more, had average household income of $210,000. “Government-granted privilege,” says Matthew Mitchell of the Mercatus Center, “is an extraordinarily destructive force:” because it not only results in a misallocation of resources and slower growth, it undermines civil society and the legitimacy of government by providing a rich soil for corruption.

The greatest plague to the honest Midwest farmer is not unfavorable weather, pestilence or disease.  Far worse is the plague of politicians who create an artificial market in which only those with influence can truly compete. A monopoly protected by the government has little incentive to  provide good service, and in the long run, the result of anti-competitive policies is less innovation, lower growth and a smaller pie to share. The farm bill represents the capture of the legislative process by special interests.

Everybody knows that the Farm Bill  is a bad thing. Politicians condemn it. But nothing changes. Next year  we will still agree that it is a bad thing. Politicians will condemn it, and nothing will change except a higher national debt number.

Meanwhile, while hunger stalks the Middle East, the U.S. Air Force spent $50 per gallon on biofuels for a demonstration last month, intended to show “the promise of the alternative energy source.” That’s more than double what the U.S. Navy spent as part of its so-called Great Green Fleet demonstration.  For the Green Fleet demonstration the Navy spent $12 million on 450,000 gallons of fuel, or approximately $26 a gallon. Combining the fuel with petroleum in a 50-50 mixture reduces the cost per gallon to around $15, more than four times the cost of petroleum alone. The company that provided the Navy’s biofuel, Solazyme, was a recipient of a $21.8 million stimulus grant to build a biofuel refinery. So this proves the usefulness of the biofuels industry?

“Our use of fossil fuels is a very real threat to our national security” the Navy insisted in defending the purchase. The Navy has apparently not heard that the U.S. sits on enough oil and natural gas to power the country for hundreds of years. The administration seems to e looking for ways to push alternative fuels without congressional action, so the military is a logical place to start, if that is your goal.

Assumptions about economies of scale and commercial-size refining capabilities, the Pentagon still expects to pay a $2.2 billion premium on annual fuel costs by 2020. This makes an extraordinary amount of common sense in an era when they are slashing military spending to levels described as dangerous. I have to assume that this is just direct orders from Obama. He seems to be one of the last adults to still believe in global warming, and to believe that his move to replace fossil fuels with corn ethanol will save the planet. Everybody has their own personal fantasies. That is Obama’s.

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Good article overall. Just a few observations:

[T]he New England Complex Systems Institute (NECSI) has found biofuels responsible for a slow upwards rise in prices, and speculation responsible for the spikes.

Then they must have done their analysis wrong. The difference between demand for corn and soybeans for biofuels and the demand for these crops for all other uses is that that demand is fixed and inflexible. Thus it acts as a magnifier. When prices rise, all the adjustment in quantities must occur in the other segments. Given that demand in the food market is highly inelastic, this leads to rapid acceleration in prices. The rise in “demand” for feedstock for biofuels at times has been too rapid for production to keep up. That means that they have not had a constant pressure on prices but a pressure that varies depending on other market developments.

Agribusiness in 2008 spent $173.5 million lobbying for farmers to become rent-seekers.

To become rent seekers?! The broad-acre farmers (those who grow cereals, sugarbeet, sugar cane, and oilseeds) are third-generation rent-seekers. Farm subsidies got started in the Dust Bowl, were originally intended to be temporary, but have been going strong ever since.

For a great exposé on the scandal of the Great Green Fleet, see this wonderful article from Planet Ark, a news service aimed at people interested in environment-related news. To quote:

Even as the biofuel companies work to build revenues in an emerging field, their investors and employees have worked the political system, campaign finance records show. Investors, officers and employees at Solazyme and Gevo have contributed hundreds of thousands of dollars to political campaigns in recent years, primarily to Democrats.

Both companies have relied on extensive lobbying to help them win modest contracts.

Solazyme relies on in-house lobbyist Drew Littman, a former staffer to Democratic Senators Al Franken of Minnesota and Barbara Boxer of California. This year, it also hired McBee Strategic Consulting L.L.C., which represented Solyndra, the solar panel maker that went bankrupt after receiving more than $500 million in federal loans.

Solazyme also solicits strategic advice from two prominent Clinton administration officials – former CIA director R. James Woolsey, who has served in other administrations as well, and former Deputy Energy Secretary T.J. Glauthier.

Glauthier also served for five years in the Clinton White House at the Office of Management and Budget. He was on President Barack Obama’s transition staff and worked on the energy portion of the stimulus bill.


Comment by Subsidy Eye

Just a hotbed of crony capitalism, isn’t it? It is such a way of life for Chicago politics, and for DC that nobody seems to see anything wrong with it. Such a waste.

I think Obama is a true believer. Global warming, to him is real, and anyone suggesting otherwise— must be an evil Republican. The marvelous glut of new fossil fuels has not penetrated his consciousness. No more worries about “foreign oil.” We’ll get those algae farms working, and be protected from carbon forever.

I was just reading a piece by Steny Hoyer who is quite sure that the two most important tings to boost the economy are unemployment and food stamps, because people spend those benefits immediately and they go out into the economy doing their Keynesian multiplier thingy. Except that serious economists have measured the multiplier effect and found it to be approximately zero. These liberals give me a headache.


Comment by The Elephant's Child

Groan! If want to be a broken record, I can be too. The push for alternative energy in the Military is not about global warming. Obama and his aids (particularly USDA Secretary Vilsack) are not pushing for this stuff out of some idealistic, “We must do this to save the world” drive. This is, as usual, about the military-industrial complex or, more accurately, the military-agri-industry complex.

The difference this time around is that the military, particularly the Navy, is the reluctant partner. There are many ex-military advisors, arm-chair defense strategists and the like who are convinced that the dependence of the military on oil supplies is becoming dangerous. They cite the high cost of fuels delivered to the field in Afghanistan — 10 times the world price. So, if (for example) quieter solar cells and storage batteries can be used to cut back the need for diesel to run generators, and do it more cheaply, that sounds to me like a good idea.

But when it comes to fuels, this is all about appeasing the aerospace industry (notably Boeing) and their new-found buddies in the biofuels industry, who are looking to the Military as a sugar-daddy with bottomless pockets to get an aviation-biofuels kick-started. And, of course, the USDA political appointees (just like the ones in the Bush Administration) are only too happy to whip the horses and provide all kinds of incentives for farmers to provide the feedstocks.

What is especially galling, to me, is all the assurances that the aviation industry was making several years ago that they wouldn’t go near food crops for their fuel feedstock. So we hear a lot about these new, “advanced” biofuels that they are using. But, guess what, the algae producing that expensive oil is fed on sugar, and the isobutanol used by another company comes from plants that have been bolted onto existing corn-ethanol plants.

You may think I’m obsessed by biofuels, but the story keeps getting worse, and worse, and worse. And, as you point out, with global repercussions.


Comment by Subsidy Eye

There are always political players. And we can’t expect everybody to be well-informed or well-intentioned; but one of the reasons to support smaller government is that complicity and appeasement and pay-offs become more visible. Solar and wind are inefficient and cannot be made efficient. The sun is too diffuse, the wind is too intermittent and we don’t have enough spare land for algae farming. We now have a glut of fossil fuels, and when we run out of that there’s methane hydrate.

Obama may find it advantageous to have the support of Big Green, but I am convinced that he is a true believer, and expects a clean green economy to be his legacy. And I just don’t believe in biofuels, period.


Comment by The Elephant's Child

Doug Koplow, over at EarthTrack, has done a more thorough job than I have on this topic, so enjoy:

A quote:

The push for widespread adoption of biofuels into military equipment makes no economic or military sense. It is more expensive, and ignores the many complex environmental issues with biomass sourcing that have cropped up with land-based biofuels markets. Some blends may have lower power densities, and actually reduce mission-readiness and range.

In contrast, the military’s push to replace delivered fuels with energy sources that have shorter or smaller supply chains does make sense. I’d much rather see investments into more efficient vehicles, better logistics systems, using “fuels-at-the-front” prices in military budgets so ground-level commanders could see the real prices and make better trade-offs, and increased ability for equipment to use (if necessary) lower grade fuels without breaking.


Comment by Subsidy Eye

Interesting. My reading on biofuels of various sorts suggests to me that it’s a dead end. Sugar cane, switchgrass, corn, palm oil, wood biomass and algae — am I leaving any out? Algae is supposed to take prohibitively large acreages to produce, though my birdbath produces quite a bit every few days. So what was the purpose of fueling the Great Green Fleet with biofuels? I thought nuclear was the Navy’s answer, or does that just apply to carriers and subs? Was it Nellis AFB where they tried installing alternative energy, and it was a real flop? I don’t remember if it was solar arrays, must have been. Wouldn’t be wind turbines.


Comment by The Elephant's Child

Dead end? Bwoff. It depends on who you talk to, I guess. If you’re not concerned with carbon emissions or loss of habitat, there is a huge amount of biofuels that could be made from sugar-cane or palm oil grown in the tropics. The production costs are reasonable (below $50 per barrel), but of course until and unless their production got so huge that they were truly eroding the market for petroleum fuels, they would continue to be sold at petroleum-price parity.

The aviation industry’s answer to that problem is “we’ll vertically integrate into production or purchase the fuels, at cost, under long-term contracts.” I’ve asked these same people, then why didn’t you vertically integrate into oil production and refining 40 years ago? I have yet to receive a cogent answer.

Anybody who is concerned with effects on food prices, carbon emissions, and destruction of habitat, however, regards government programs to promote biofuels with alarm. Yeah, you can make some from used cooking oil and waste fats (though even some of these compete with the soap-making industry), but their supply is very limited in the grand scheme of things. You are right about algae requiring land and water. There are, of course, kinds of algae that grow in salt water, but they are not the ones that the emerging companies are using.

As for nuclear energy, I have asked around about this, and one answer is that — at least until recently — nuclear propulsion for surface aircraft has been very expensive. (If it wasn’t we’d have seen a lot more private shipping companies using it.) That view may be changing in light of $100+ per barrel oil. The other problem, apparently, is that certain American allies refuse to allow nuclear-powered or armed ships into their ports. So non-nuclear propulsion leaves more options open.

I don’t know the answer off hand to your question regarding Nellis AFB. Solar power is not a total flop everywhere. It has been used (in combination with specially designed storage batteries) quite successfully in lots of remote applications (e.g., navigation signals, recharging batteries for satellite communications), and for street lighting. I suspect that the military has also similarly found it more practical than lugging in fuel for certain small-scale remote applications.


Comment by Subsidy Eye

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