Sunday, May 1, 2011

The Cost of Being Green

Let's substitute home-grown ethanol for gasoline we must import. Sounds like a win-win proposition, doesn't it? Like most policies, there is a contrarian point of view.

This weekend's Wall Street Journal interview is with C. Larry Pope, chief executive officer of Smithfield Foods, Inc., the world's largest pork producer. He is a fascinating amalgam of good ole boy and cost accountant. The "good ole boy" part makes him a fine storyteller and the "cost accountant" part makes his stories highly relevant. All in all, he's a good interview subject.

He says much of the price rise we're seeing at the grocery store can be attributed to the diversion of corn to ethanol-for-fuel production. Corn is the basic livestock food that supports the production of eggs, milk, and meat.

Push up the price of corn - Pope claims it has tripled recently - and producers substitute other grains. At the same time, farmers switch to producing corn. That pushes up the price of bread. Together eggs, milk, meat, and bread make up a serious part of the typical household's food budget.

So...we burn corn-based ethanol in our cars and push up the price of food. But we won't import ethanol so our domestic producers corner the market. That tells you what the ethanol-as-fuel requirement really is - a farm subsidy thinly disguised as environmental protection.

For this farm subsidy we consumers pay twice: we pay taxes to subsidize ethanol production, and we pay again at the supermarket check stand. This feels like a vegan plot.