You don't know what you don't know

I’ve lived in the heartland the vast majority of my life and I fully understand the importance of agribusiness to my home. Growing up when I did, I vividly remember the OPEC embargo of the 1973 and when the United States first became aware how dependent we had become on foreign oil. I fully understand why a decrease in the dependence on imported oil is important (whether through economy or increased production). In my neck of the woods, a lot of hope is being placed in ethanol since it has the potential to address both issues in one program. However, like anything else, I think it is important to consider the impact when you change direction.

As I was driving to Columbia last week, I was listening to Audible Technology Review. One article from February suggested that ethanol production could have significant negative impact on other areas. In other words, we may decrease our gas prices, but we could increase costs elsewhere. One example that they mentioned in the article is that corn tortillas have doubled in price in Mexico City. The article suggests that increase in corn prices (up from $1.84 to $4.00 per bushel) combined with a decrease in exports (since corn is worth more in the domestic market) it is driving up the price of tortillas in Mexico. I think everyone understands how ethanol could increase corn prices. However, affecting the balance of trade with Mexico is not on most people’s radar.

Another example is the price ripple corn has on other foodstuffs. Since corn is a primary ingredient in livestock feed, some have reported a 15 percent increase in beef, chicken and egg prices. So, increased use of ethanol may cost us less to fill up at the pump, but all savings may be absorbed by increased food costs, or an increase in the price of imported goods since we have a growing trade imbalance.

Just to backtrack for a second, I don’t know that anyone is saying that ethanol will decrease fuel costs. Now that I think about it, all anyone has said is that the use of ethanol will decrease our dependence on foreign oil. So, even though people expect “cheap gas” to result from ethanol production, that may not be an actual benefit.

About a year ago, someone told me that it was important to know what you know, to know what you don’t know, but also to understand that frequently, don’t know what you don’t know. My concern about jumping head first into ethanol production is that we really don’t know how this will affect food costs, increases in feed costs, effects on soil nutrition and crop rotation, for instance. Personally, I think those points may all be manageable. However, not knowing how ethanol production will affect unknown issues is my greater concern.