A Somewhat Surprising Price Rise
The road to alternative energy hits an unexpected bump
China's inflation has rocketed to a 11-year high, primarily on the back of rising food prices, which have risen a whopping 18.2% over the year. Britain is seeing the highest gain in food prices since 1993 . And in the US, according to Labor Department statistics, food costs are on track for an annual gain of 7.5%, the biggest since 1980.
The Economist attributes two reasons for the unexpected rise in the price of food - rising incomes in the world's developing countries, and subsidies on ethanol fuels. The first - rising incomes in the developing world - contributes to food price rise in two ways. The obvious way is that, as more people come out of poverty, they increase the amount of food they eat, thus raising demand for food in general. Somewhat less obviously, people also shift to a diet with more meat content, which multiplies the demand for foodgrain (it takes several calories of grain to make one calorie of meat).
Thus, while the first reason for this "agflation" is simply the result of a lifestyle choice being exercised by millions of people, the second reason stems from a policy choice by the US government - to subsidize ethanol-based fuels. This is causing causing US farmers to divert more farmland to growing the corn that goes into making ethanol, thus reducing the land under cultivation for foodgrain. The natural effect of this is to raise foodgrain prices. It is thus being argued that such subsidies effectively translate into a tax on the poor.
Of course, not everybody is buying the ethanol-subsidy-as-a-culprit theory. A recent study based on 20 years of price data shows that corn prices have minimal impact on the U.S. Consumer Price Index for food.
Overall, it is fairly clear that a strong link has emerged between cereal and energy prices - both because transporting cereals takes energy, and because rising energy prices mean more land being diverted to growing grain for ethanol production, thus reducing the land under foodgrain cultivation.
All this goes to show that the effort to move away from conventional fossil fuels and toward alternative energy sources is more complex than it appears. All the more support for our approach toward foreseeing the potential of an emerging technology (by our definition, an alternative energy source counts as an emerging technology), which takes a wide variety of factors into consideration.
China's inflation has rocketed to a 11-year high, primarily on the back of rising food prices, which have risen a whopping 18.2% over the year. Britain is seeing the highest gain in food prices since 1993 . And in the US, according to Labor Department statistics, food costs are on track for an annual gain of 7.5%, the biggest since 1980.
The Economist attributes two reasons for the unexpected rise in the price of food - rising incomes in the world's developing countries, and subsidies on ethanol fuels. The first - rising incomes in the developing world - contributes to food price rise in two ways. The obvious way is that, as more people come out of poverty, they increase the amount of food they eat, thus raising demand for food in general. Somewhat less obviously, people also shift to a diet with more meat content, which multiplies the demand for foodgrain (it takes several calories of grain to make one calorie of meat).
Thus, while the first reason for this "agflation" is simply the result of a lifestyle choice being exercised by millions of people, the second reason stems from a policy choice by the US government - to subsidize ethanol-based fuels. This is causing causing US farmers to divert more farmland to growing the corn that goes into making ethanol, thus reducing the land under cultivation for foodgrain. The natural effect of this is to raise foodgrain prices. It is thus being argued that such subsidies effectively translate into a tax on the poor.
Of course, not everybody is buying the ethanol-subsidy-as-a-culprit theory. A recent study based on 20 years of price data shows that corn prices have minimal impact on the U.S. Consumer Price Index for food.
Overall, it is fairly clear that a strong link has emerged between cereal and energy prices - both because transporting cereals takes energy, and because rising energy prices mean more land being diverted to growing grain for ethanol production, thus reducing the land under foodgrain cultivation.
All this goes to show that the effort to move away from conventional fossil fuels and toward alternative energy sources is more complex than it appears. All the more support for our approach toward foreseeing the potential of an emerging technology (by our definition, an alternative energy source counts as an emerging technology), which takes a wide variety of factors into consideration.
posted by Vivek Pai Kochikar at 12:40 AM
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