Energy Heating Up Inflation

I am not quite sure why this was a surprise:

Producer prices unexpectedly jump 1.3%

There were two major culprits identified: Energy and food. However, the food component was also related to energy:

Food prices rose 1.9%, as prices for unprocessed foods rose 11.2%. Fresh fruit prices rose 15.7% and fresh vegetable prices rose 8.3%. Pasta prices rose 4.3%, the most in 11 years. Food prices have been rising rapidly, in part in response to the diversion of corn into the ethanol market as a substitute for gasoline.

Food prices have now risen more than 1% for three months in a row and are running at an annualized rate of 18.1% in that time. Other than a spike in 2004 caused by a drought, that’s the fastest three-month gain since 1984.

Yet I keep hearing from people how this food versus fuel issue is just a myth. I have a feeling that we are going to end up seeing a backlash over this as demand for corn continues to pick up.

China is dealing with the same issue, but they are taking action. From an article last week in China Daily:

China will this year invest more in biomass ethanol projects over maize-based ones because of a lack of grain.

The current maize-ethanol production capacity has far surpassed what the corn output can provide as an important grain resource,” Du Ying, vice-minister of National Development and Reform Commission, said.

“We are researching all kinds of biomass energy options, and others include sorghum ethanol and coal diesel oil projects,” Yang Xiongnian, deputy director of science and technology, education and rural environment department of the ministry told China Daily.

But establishing new maize ethanol projects should be temporarily stopped.”

7 thoughts on “Energy Heating Up Inflation”

  1. Dear sir, the following is a copy of an article on my blog ” dated 15 Feburary 2007, discussing bio fuels that you may find of intresst also, energy is the reason we are in Iraq, and the reason we had to get Israel out of Lebnon, and the reason we can not attack Iran, for now, Bio fuels made from corn are not the panaccea that we seek ,

    Thursday, February 15, 2007
    A Fool’s Gold
    Give or take a few hundred million, today the earth is inhabited by about six and a half billion people. That is estimated to be as many people as have ever inhabited this planet over the millennia since its existence. Although with the technology, and medicine people are living healthier and longer lives. There are probably more millionaires, per capita than ever, we have bigger houses, more cars, more airplanes, etc, etc. We also have more poor, more starvation and more people who are sicker than ever.

    Whether you are a fan of global warming or not, that is a totally different issue, there are other consequences of this population boom that do not bode well for our future, that is the future of the mankind as a whole.

    And this brings me to the recent editorial in “The Dothan Eagle” of Friday February 16, 2007, “ Biofuel research must be a top priority”. I admit that most of it is well thought out and well intentioned, it still leaves out a few problems and concerns that I have with promoting the Biofuel idea as an alternative to the “black gold”.

    As we, at the behest of our beloved decider, jump head long into the research and conversions in to Biofuel arena we must consider a few other points. Your editorial already mentions the increase in the cost of corn due to the ethanol production and the cost of tortillas in Mexico, here are a few other items that needs to be considered.

    Whether we use the corn or the switch grasses to produce the ethanol, the price of corn will stay up as the land being used to produce corn for the fuel will be used to grow switch grasses, thus the increase in food prices will be the same or similar no matter what we use to produce that fuel. We already see the price of eggs and poultry going up, and surely the cereals, the price of beef and the soft drinks will also go up as the price of corn syrup used in the soft drinks climbs, ethanol also is more expensive to produce than the gasoline and is less efficient, as you correctly noted in your editorial.

    We must also keep in mind that even as ethanol is cleaner burning, the fuel is not less polluting to the environment, as to grow more and more organic materials to produce ethanol we will need more and more fertilizers and insecticides and thus directly pollute the under ground water reservoirs and rivers and the oceans, endangering the aquatic life and our own lives also.

    As the competition grows for the land use, as to what we need more, the fuel or the food, the price of food articles will keep growing and become almost prohibitive for the poor, or just like in South America we will be forced to cut down the forests to grow these new crops, or let people go hungry. We have always sent our surplus crops to the starving around the world, with a switch to the biofuels we will endanger our own people. Will our elders and the poor on limited incomes still be able to eat?

    Will we increase the minimum wage and social security benefits yet again to cover the cost of new more expensive fuel and the cost of food? How will we explain to the starving that they can not eat so as we can still drive our SUVs? What will we do when the fish populations start to die in our rivers because they have become more polluted with the fertilizers and insecticides?

    The true and the only solution to our predicament of dependence on foreign oil is to reduce our “addiction” to oil, foreign and domestic. And we can start that by improving public transportation, making smaller cars, using less drive through’, and yes imposing higher and higher taxes on gas to be used for improved public transport. Would you believe a four dollar a gallon gasoline/ diesel tax will give us better and less congested roads, clean the air, give us better transportation systems, actually reduce poverty, and help bring many of our jobs back from over seas, will force Wal- mart into smaller stores, cut our dependence on the Arab oil, reduce terrorism, keep the Arabs from buying out the United States, and tell Hugo Chavez where to get off at.

    If we do follow the road to the biofuel heaven, the over all cost increase in foods and fuel and the environmental damage will be the same as a four dollar a gallon fuel tax.

    So how patriotic are YOU feeling today?
    posted by The Prophet at 1:35 PM 0 Comments

  2. with known technology, there is no solution out of our fix. You need to build biofuels, liquefied coal, build nuclear power plants, or any other source of concentrated energy in order to have a modern civilization. I know people love to tout urban living and public transportation as a solution but going back to the first cities, urban living means more expensive food, more expensive real estate, more disease, less freedoms, and more social straitjackets to keep people from killing each other.

    It’s also not just that we have more people than we ever have in the past, it’s that takes more person hours to produce a btu or kilowatt of energy and reducing population is not going to help much.

    IMHO, the solution lies in finding a way to collect energy at a lower person hour cost than oil. until that happens, people should prepare to suffer physically and financially.

  3. The biggest rises are in fresh vegetables, which seems a lot more connected to recent frosts in California than ethanol.

  4. The biggest rises are in fresh vegetables, which seems a lot more connected to recent frosts in California than ethanol.

    Hey, I saw you mention Choren over at Green Car Congress. I am heading over there for a visit in a couple of weeks. I plan on writing a report on the visit.

    Cheers, Robert

  5. Hi Robert,

    I am currently based in the Bio Energy Research Group at Aston University (in Birmingham, UK). BERG work together with FZK and they’ve got a working relationship with CHORen.

    My area of expertise is fast pyrolysis (take biomass, heat it to 500C for a second, flash condense it and get a 70% liquid yield, the liquid is a complex mixture of organics like hydroxyacetaldehyde or acetic acid, of lignin fragments and of water).

    FZK think there’s an advantage in producing a char/oil slurry from biomass in small decentralised plants and then gasifying the slurry in high pressure oxygen blown gasifiers for subsequent FT.

    I am considering moving to the Netherlands (ECN) to work on the techno-economic assessment of biorefineries.

    It would be nice to meet up in person sometime. With our interests and location being what they are, we might run into each other some day anyway …

  6. Heiko,
    after producing the “complex mixture of organics” could you pass it through a catalyst similar to what was done by Lanny Schmidt’s group at U of Minnesota? They were using soy oil and glucose water as examples but it sounds like a variety of oganic compounds could be used to produce syn gas.

    See Science 03 Nov 2006, V 314, p. 801-804
    Droplets of nonvolatile fuels such as soy oil and glucose-water solutions can be flash evaporated by catalytic partial oxidation to produce hydrogen in high yields with a total time in the reactor of less than 50 milliseconds. Pyrolysis, coupled with catalytic oxidation of the fuels and their fragments upon impact with a hot rhodium-cerium catalyst surface, avoids the formation of deactivating carbon layers on the catalyst. The catalytic reactions of these products generate approximately 1 megawatt of heat per square meter, which maintains the catalyst surface above 800°C at high drop impact rates. At these temperatures, heavy fuels can be catalytically transformed directly into hydrogen, carbon monoxide, and other small molecules in very short contact times without the formation of carbon.

  7. Wang Dang,

    not sure on what they’ve done. It sounds interesting enough that I’ll look into it, when I find some time.

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