As we have seen recently, high energy prices along with rent-seeking from Midwestern farmers have prompted politicians in the U.S. to subsidize ethanol production. This has, raised the price of corn, other crops that grow on land that could grow corn, and other crops that could serve as substitutes for consumers for corn. With crop prices going up, farmers are encouraged to grow more and to grow more on the same amount of land, so with a high output price, the derived demand for inputs has gone up as well. In class, we concentrated on the derived demand for labor. Take a look at this story from the New York Times on the demand for fertilizer in Vietnam.Â
Higher output prices for corn, rice, wheat, barley, soybeans and other crops has driven up the price for an important input in agriculture–fertilizer. We begin with a surplus of fertilizer in Washington, D.C. and end up with a shortage of fertilizer in Vietnam, but we cannot seem to get rid of that fertilizer surplus in D.C. Talk about a misallocation of resources!
-MC
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on Wednesday, April 30th, 2008 at 1:16 pm and is filed under Agriculture, General, Political Economy.
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May 2nd, 2008 at 3:45 am
I believe this issue is far from resolved. As is seems ethanol will not be any better an may even be worse. Corn ethanol isn’t renewable because of modern industrial corn growing’s dependence on natural gas. Modern corn farming wouldn’t be possible without nitrogen fertilizers and what few realize is that over 90% of nitrogen is now made from natural gas. I just see this as being a problem for a long time. I dont even have a guess to s solution to this problem.