Saturday, May 03, 2008

Growing, Making, Doing

I have often been adjured to think globally, but I confess that I seldom do so. The world is so very big and complicated. However, I wanted to calibrate myself on how the world spends its money. The most common measure is Gross Domestic Product (GDP) , which is the total amount spent on all goods and services. Various organizations take a stab at estimating the GDP for the whole world (GWP). Here is some data from the CIA world fact book:

GWP (gross world product): $65.82 trillion (2007 est.)

GDP - per capita (PPP):$10,000 (2007 est.)

GDP - composition by sector: agriculture: 4% industry: 32% services: 64% (2007 est.)

I knew that the amount spent on agriculture was smaller than what is spent for manufactured goods and for the service sector. I was astounded to see how small it really is. Worldwide we spend about $42 trillion paying each other to perform services. We spend $21 trillion dollars to make manufactured goods. We spend less than $3 trillion dollars to grow food.

Granted, three trillion dollars is a lot of money. However, it amounts to about $500 per year per person. That's for corn, wheat, rice, beans, meat and other food (from Asparagus to Yams). And those crops are listed pretty much in order of value. I know for sure that corn is by far the biggest crop worldwide. Wheat is number two. Rice is a distant third.

Oddly, a large portion of the corn is used to make non-food products. That is not just since the move to biofuels. It has been true for many years. Large portions get turned into all sorts of things. Here is a list I found in a school lesson about corn usage:

batteries paint cosmetics
cardboard crayons explosives
detergents insecticides photographs
ethanol wallpaper ink
film plastics trash bags
fire works deodorants mouthwash
lotions golf tees adhesives
paper glue shoe polish
lubricants rayon soap
packing material

So what's the big deal about ethanol? The big deal is that rich countries are spending many billions of dollars to prop up ethanol as a fuel. It can't compete without subsidies. There is hope that some day it could, but making ethanol from corn uses so much energy that it is a long shot.
An even longer shot is turning switch grass or other non-food crops into ethanol economically.
I'm not saying it won't ever happen. I am saying that it is crazy to try to spend enough tax dollars to make it happen. Spending money to make something cheaper!

It is also obvious that agriculture is a low priority for the people of the world. Remember, about 96% is spent on making things or performing services. Only 4% is spent on growing food.

Here is another way to put things in perspective: A bushel of corn weighs 56 pounds. Even at record high prices that is about 10 cents a pound. And corn was only about 3 or 4 cents a pound just a couple of years ago.

One last thought. If ethanol had to be subsidized to be profitable when corn was $2 a bushel, how profitable to you think it will be at $6 per bushel?

The biggest change in world grain markets in the past year has been rich countries turning on their subsidized ethanol production in really big volumes.
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