Friday, May 16, 2008

Remedial Math

To my four readers: you know me -- I don't write about politics, government, issues, that sort of thing. This morning's Sioux Falls Argus Leader had an opinion piece that was so astonishingly bad that I couldn't resist. I like an easy target as much as the next guy.

The entire South Dakota congressional delegation, all three of them, combined their talents to write in support of ethanol. No big surprise -- lots of corn farmers around here, and lots of ethanol plants. OK, fine. You're just pandering to the voters representing your constituents. But get the arithmetic right, will you?

Let's go over this.

Francisco Blanch, a Merrill Lynch analyst, estimated that the use of renewable biofuels keeps gasoline prices 15 percent below what they might be. With today's gas prices, that means a $.52 per gallon increase from $3.50 for gasoline today to $4.02.

So that means $3.50 is 15% less than $4.02, right? Wrong. It's about 12.9% less. Maybe they meant to say prices would be 15% above what they are now if not for ethanol, or maybe the Merrill Lynch analyst meant to say that. Either way, somebody got it wrong.

Iowa State University recently confirmed Blanch's estimations with a study that showed ethanol has reduced gasoline prices from $.29 to $.40 per gallon.

So, a $0.29 to $0.40 estimate "confirmed" a $0.52 estimate. Got it.

Today, the United States imports about 12 percent (16.9 billion gallons) of the total refined gasoline consumed nationwide. When all ethanol facilities currently under construction are completed, the United States will have approximately 13 billion gallons of ethanol capacity. This will displace 77 percent of the total amount of gasoline imported into the United States each year.

13 billion is in fact 77% of 16.9 billion. Hey! They got one right? Alas, no. The increase from today's 8.5 billion gallons to tomorrow's 13 billion is only 4.5 billion, which is only about 27%. Furthermore, this assumes that ethanol has the same energy density per gallon as gasoline. It is much lower. In other words, it takes more than a gallon of ethanol to replace a gallon of gasoline.

Still, the renewable fuels industry is in its infancy, and we can do more. United States farmers produced 13.1 billion bushels of corn in 2007, averaging 151.1 bushels per acre. USDA estimates that we will produce 178 bushels per acre by 2015. Additionally, many experts predict that we will produce 300 bushels per acre by 2030. If these projections are accurate, the United States will be able to produce 60 billion gallons of ethanol from corn in 2030 without diverting corn from other uses and without expanding planted acreage in the United States. Moreover, this projection does not take into account increased efficiencies that will be realized through new technologies.

So what does it take into account? Magic? How do we nearly double our corn production per acre without increased efficiencies through new technologies? Maybe they're talking about increased efficiencies in the ethanol conversion process. I'll give them the benefit of the doubt.

Importantly, worldwide corn production increased by 2.7 billion bushels from 2006 to 2007, and during this period ethanol demand for corn increased by 600 million bushels - 2 percent of the total.

Maybe 2% of the total, but 22% of the increase. I guess this one falls under Disraeli's third category of lies.

Today, distillers grains are $66 per ton cheaper than feeding with corn. With corn at $5.56 per bushel, cattle feeders would pay $268 per ton of total digestible nutrients for corn while only paying $201 per ton of TDN for distillers grains.

$268 - $201 = $67. Or $66. Whatever.

The results are clear. Without ethanol, consumers would be paying more for gas at the pump and more for food at the store.

We'd be paying more for food without ethanol? Seems like I read somewhere that the opposite was true. Now where was that? Oh, right here -- you said it, just a few paragraphs ago:

[T]he White House recently has stated that "production of corn-based biofuels is estimated to account for only three percent of the 43 percent increase in global food prices."

Is our delegation in Washington really this bad at math, or do they just think we are?


We now return to our regularly scheduled program of self-indulgent cat photos.



UPDATE: The Guardian reports that a World Bank study shows that the increase in food prices due to biofuels isn't 3% like the White House says, but a whopping 75%. Yikes!

5 comments:

Maraurder said...

Remedial Math? How about this, the major element driving the cost of food higher is the price paid during production, processing and delivery for petroleum based fuel? The producer (farmer) gets less than 2% on average of the final retail price of products. So, even with your "facts" ethanol has reduced the cost of fuel by 12% +/- therefore, ethanol has actually helped to keep the cost of food from going even higher.

It is easy to fall into lock step with the petroleum companies and bash ethanol (one of the basics of propaganda is the 'big lie' tell it often enough and someone will believe it re: Exxon, shell etc...) but the truth is that the promise of ethanol has been realized, it is helping our country displace oil even at this level of production. When the additional capacity is added, it will help even more.

Kristopher said...

Wait... you have 3 other readers?

Kristopher said...

I meant to include this link with my last comment. It seems relevant.

http://www.time.com/time/magazine/article/0,9171,1725975,00.html

Joseph said...

Marauder:

For the record, I'm happy to listen to a factual, reasoned defense of ethanol. Johnson, Thune, and Herseth Sandlin have instead given us some obviously twisted numbers. It's really the math I'm complaining about.

Speaking of numbers, can you back up your assertion that the farmer gets on average only 2% of the retail price? I found this 2006 study by the USDA putting the number at 23.5% for vegetable farmers, and 26.6% for fruit. I couldn't find an equivalent study for grain farmers. I found this blog post, which referenced the National Farmer's Union (I couldn't find the original source online), which lists the retail price and farmer's share of a variety of food products. The range was from 1.58% for a box of Wheaties to over 35% for milk and cheese. Wheaties was by far the lowest, and only three of the 13 items were under 10%. If that same wheat goes not into a box of breakfast cereal, but into a sack of flour, the farmer retains 26% of the retail price.

I'd also be interested in reading your source for the share of petroleum in the cost of food. With oil at $125 per barrel, I'm sure it's a pretty big share, but what's the actual percentage?

Patrick said...

Making transportation fuel from corn is one of the dumbest ideas ever. Do people really think that the world has an excess of high quality farmland and that everything will be fine if we divert the use of this farmland from producing food to producing fuel?

The environmental argument in favor of biofuel seems to fall apart when you do more than the most superficial analysis:

http://www.sciencemag.org/cgi/content/abstract/319/5867/1238

And economically, the only reason corn ethanol is viable is because of the subsidies the government is paying to support production, which brings us to the cause of the problem, which is them there politicians in Warshington . . .