Ethanol and the price of bacon

Every Saturday in the Wall Street Journal there is a section called “The Weekend Interview”.  Yesterday’s interviewee was C. Larry Pope, CEO of Smithfield Foods, Inc.  The entire article is well worth the time it will take you to read it, particularly to get an understanding of how business works.  But, let me give you a few excerpts to explain why it is increasingly more difficult for you “to bring home the bacon”.

 Over the last several years, ‘the cost of corn has gone from a base of $2.40 a bushel to today at $7.40 a bushel, nearly triple what it was just a few years ago’…

Why?  Today 40% of our corn crop is devoted to making ethanol, which is subsidized by your tax dollars.  This drives up the cost of the some 40% of our crop that goes to feeding livestock.  That, in turn, raises the  price of all of your food that is dependent upon livestock.

Rising [corn] prices are already squeezing food producers’ “two to three percent” earnings margins. ‘Many of us had our costs hedged in the commodity markets and we all took on strident measures to control our cost structures… [i]n the case of Smithfield, we closed six processing plants and one slaughter plant. We also closed 15% of all our live production business.” But “once those measures are done, we have no choice but to pass those prices down to consumers. [emphasis supplied]

According to Mr. Pope, ten years ago a pound of bacon cost $3.16.  Today, the cost is $4.54.

We now know, according to the EPA, that ethanol has a neutral to negative impact on the environment.  But, beyond that,

[t]he [ethanol] subsidy has been out there since the 1970s… [i]f they can’t make themselves into a viable economic model in 40 years, haven’t we demonstrated that this is an industry that shouldn’t exist?

But, Mr. Pope runs a business.  Rather than put his hand out for some form of “government subsidy”, here is what he is doing.

He’s assigned one of his senior executives the task of figuring out what else Smithfield could possibly feed hogs, other than corn. Could Mr. Pope have envisioned setting up such an enterprise a few years ago?  ‘Absolutely not’ he says. ‘It’s me trying to change our business model to adapt to the realities that I have to live in.’

Ethanol damages many vehicles’ fuel systems, provides less fuel efficiency than gasoline, drives up the price of virtually everything we eat, and, has no or a negative impact on the environment.

We need to stop this insanity.

12 replies
  1. JollyRoger
    JollyRoger says:

    Ethanol costs me 3.6 MPG , so now I get less than 200 miles on a tank of gas!? That’s an extra 210 gallons consumed for every 15K miles driven.? That’s a huge pay cut, it’s a lot of federal and state + gross receipts tax; and it means every product I purchase costs me more because all of those same taxes and expenses are rolled into every item purchased!? Multiply that times 300 million citizens…? And the media are silent because they want their boy, Count Baracula, reelected in 2012!? Got any advice on nations accepting American refugees?

    • TomL
      TomL says:

      I hear that Costa Rica has a huge american?ex patriot population and they actually like us.

  2. johnboy111
    johnboy111 says:

    as a property manager ethanol is killing all my all small engines are being burnt up and ethanol also attracts water which is fowling the motors from the inside..SO FAR IT SOUNDS LIKE A GREAT USE OF CORN??????????

  3. David R
    David R says:

    For the Ethanol boondoggle we need to thank Dwayne Andreas of?agicultural giant Archer Daniels Midland. Incidently he and his?have been?some of largest contributors to both parties.
    Back in 80s Bob Dole (R)?replaced?Hubert Humphrey?(D) as ADM’s man in Congress. Dole, who I admire greatly, saw in ethanol a huge boost for his home state of Kansas. Ethanol legislation resulted in 1.2 billion net revenue for corn growers at a cost of 700 million to tax payers. As noted?in the post and replies,?the ethanol boondoggle can?t succeed without government subsidies.?
    In 1995 the?House attempted to kill the then 17 year old tax break, Dole called Gengrich and the bill was killed. ADM works with whoever is in power, and both Dems and Republicans have shown no qualms about taking their money. My point is that it is not enough to chastise one party because the other can be bought just as easily. The message needs to be sent to both so ADM and the like can’t hi-jack the system.

    • ricbee
      ricbee says:

      Oh but they have. But there is none who strongly advocate this subsidy to stop. Both Dumbocrats & Repulsivicans? are in thrall to ADM money.

  4. Plainvillian
    Plainvillian says:

    The present system in which unintended consequences be damned, we must fund all existing programs is unsustainable.? The 40 year Charlie Foxtrot of ethanol is a prime example of why we should insist on sunset limits of every piece of legislation passed by Congress and congressional review of the constitutional validity of every regulation promulgated by any Federal agency.

  5. sammy22
    sammy22 says:

    As David R correctly points out the ethanol subsidy has been around a long time with both parties in power. Surely the corn growers are happy w/ the subsidy and will complain mightily if the subsidy is threatened. It seems pathetic that the problems with the ethanol policy are getting attention now: they have been around for decades!! They were not just discovered by SOS.

    • Dimsdale
      Dimsdale says:

      But it wasn’t until they needed a ubstitute for the last boondoggle fuel additive, MTBE, that ethanol use as a fuel additive? took off.? That was about 2002 (, and in a major way, after 2005.
      Maybe it is time for the government to decide which is more important, fuel mileage or a final few percentage points in pollution reduction.? And all the costs incurred by the latter.

  6. winnie888
    winnie888 says:

    There are so many things Smithfield could do to lower their costs…Let’s face it, pigs aren’t exactly picky eaters.? Personally, I won’t buy anything produced by Smithfield–they rely heavily on illegal immigrants to work in their processing plants, pay them illegal immigrant wages and then cooperate with ICE to have a certain number of them removed on a regular basis.? They farm their workers just like they farm their pigs—both are expendable and treated inhumanely.? While it aggravated me that I was forced to watch it, “Food, Inc.” is a serious smack in a consumer’s face when it comes to how factory farming is contributing to our lack of health in this country.? This guy has the right idea…
    And don’t think for one minute the government didn’t try to shut him down.? And yeah, it’s definitely more expensive, but organic meats are the way to go.? Less meat, more vegetables & fruits (but anyone who’s been to a grocery store lately knows that fresh veg./fruit is pretty darned expensive, too).
    It’s my opinion that corn has outlived its useful purpose unless it’s fresh off the cob at a cookout or smashed into a tortilla.? Ethanol…ha…let it go already.

  7. ricbee
    ricbee says:

    It seems anything the Federal government subsides is doomed to failure. But even in the face of utter disaster money is poured unceasingly into this & other boondoggles.

  8. PatRiot
    PatRiot says:

    Making and burning ethanol is a HUGE carbon footprint compared to the flatulance associated with feeding corn to animals.

  9. Gary J
    Gary J says:

    This is not new everyone. Most have simply ignored the facts and now that gasoline is going up so high so fast it’s news?? That is funny.

Comments are closed.