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.