The Unrepentant Individual

...just hanging around until Dec 21, 2012


May 4, 2007


Hitting Close To Home

“Unintended consequences.” This is a phrase that needs to be drilled into the heads of every Joe Six-Pack in this country. When government tries to fix something, they routinely create unintended consequences that end up making everyone else worse off. Often (as in any complex system) these things are difficult to see and even more difficult to trace back causally.

But we’ve got a winner. And it’s perfect to teach Average Joe Six-Pack, because government regulation is raising the cost of that six-pack

We witnessed the tens of thousands of demonstrators decrying the rapidly (and exorbitantly) rising price of corn in the “tortilla protests” in Mexico City earlier this year. The protests came about as a result of the growing demand for corn-based ethanol, the Bush administration’s biofuel of choice. But now there appears to be a new dietary staple under threat from the rising demand for ethanol: German beer.

Der Spiegel Online reports that a 2006 barley shortage will raise the wholesale price of German beer this May. Many brewing industry lobbyists attribute the price rise to farmers forgoing barley for corn in order to satisfy the global demand for biofuels, especially from the United States. In the past year, the price of barley has doubled on the German market, from €200 to €400 per ton.

But it’s not just Germany that is set to see soaring beer prices. The chief executive of Heineken (the Dutch brewer) warned in February that the expanding biofuel sector was starting to cause a “structural shift” in European and U.S. agricultural markets, which could precipitate a long-term upward shift in the price of beer. Already, futures prices for European malting barley have risen since last May by 85 percent to more than €230 a ton, and barley production in the United States has fallen to 180.05 million bushels (in 2006)—the lowest level since 1936. Global stockpiles of barley have shrunk by a third in the last two years. All of this augurs ill for beer drinkers, who may soon be paying significantly more for their pints.

So let’s lay this one out here:

1. Bush demands that we replace a certain percentage of our fuel with ethanol.
2. Because of American sugar tariffs, that ethanol is made with corn.
3. The price of corn shoots through the roof (creating consequences like increasing dairy, meat, and Mexican tortilla prices).
4. Because of rising prices, more farmers stop farming their other crops and focus their land on corn.
5. More corn means less barley, and thus the price of barley goes up as supply dwindles.
6. Beer prices rise.

Government intervention in fuel costs just happens to distort all sorts of other markets, including the market for beer. And when we start talking about beer, this isn’t academic for me: this is personal.

I think there is only one answer I have for this… Homebrewing, and to get the full cost savings of brewing my own, I need a Crankandstein so that I can buy my barley in bulk and crush it as needed. I’ll be brewing 2.5 cases of beer for less money than one case of Miller Lite! :-)

Hat Tip: Doug @ The Liberty Papers

Posted By: Brad Warbiany @ 10:31 am || Permalink || Comments (2) || Trackback URL || Categories: Beer, Economics, Libertarianism

2 Comments

  1. I knew it. Biofuels are a conspiracy by MADD.

    Comment by Nick M. — May 4, 2007 @ 2:43 pm
  2. You know some states already use 85/15 mix already, didn’t seem to notice unusual price increase some years ago. I think this has occurred only where air pollutions limits had been exceeded, which probably means majority of cars are running on it. If it is unintended consequences its the corn growers and commodities brokers overestimating the market. The shortage in Mexico on corn products seems suspicious. Why wasn’t there one in America. There were no shortage of Brands of corn products here from central America. I had thought that Brazil had produced the ethanol for the south and central America. Many of the cars built in Mexico were to designed to run on more ethanol.
    I think ethanol is one of the ingredients that give no lead gasoline its kick. That makes the difference between 92 and 87.

    Comment by VRB — May 5, 2007 @ 11:34 am

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