February 18, 2008

Ethanol and the cost of beer

There is another article in the news today that illustrates the attitude that I talked about in a recent post. In that post I suggested that ethanol was becoming the standard built in excuse for any rises in food prices.

The article I am talking about suggests that ethanol is responsible for beer prices rising.

Across the country, farm fields once used for growing hops and barley for beer are sprouting corn, which has become lucrative because of President Bush’s support of ethanol, a corn-based alternative fuel. And then, basic economics comes into play: With demand for hops and barley outstripping supply, the cost for those commodities goes up.

Full Article

On some levels this makes good logical sense and on others it doesn't. First off hops aren't row crops like corn, they are perennial, meaning that you plant them once and harvest them for years. It also is a vine which requires support structures to grow upright, so those support structures would have to be removed before corn could be planted. These support structures can be seen in this picture.

As I have noted before corn prices were at a low point in 2005 and as a result corn acreage went down in 2006. So any changes that would be seen in planting patterns would have occurred since 2005. So let's look at the numbers for corn, hops and barley.

Corn Acres Planted

2007 - 93,600,000 acres
2006 - 78,327,000 acres
2005 - 81,779,000 acres

Hops Acres Harvested (the USDA doesn't list acres planted since it is a perennial)

2007 - 30,911 acres
2006 - 29,365 acres
2005 - 29,463 acres

Barley Acres Planted

2007 - 4,020,000 acres
2006 - 3,452,000 acres
2005 - 3,875,000 acres

All this information can be found at the USDA website.

So as you can see both hops and barley both gained acreage in 2007. So why did the reporter get this wrong? He fell for the assumption that all food related price increases are because of ethanol. Once a person accepts that as fact all the rest of the "facts" such as corn limiting other crop acreages just fall into place.

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