3/28/2007

Make way for John Deere!

Who would have thought that tractors would become in high demand again? I read a recent article that spoke of how agriculture equipment for the next couple of years will be hot items. This is because of the demand for ethanol. With gas prices rising and the scare of global warming, researchers are finding ways to substitute gasoline and/or create fuel that will result in cleaner air. One way to produce ethanol is through the use of corn crops. It is estimated that there will be an 11.5% increase in acres planted this year over last. This, along with farmers needing new tractors, results in a high demand for tractors and other equipment. It is interesting to me to think about how the economy would change if this trend keeps on going. Currently, Brazil uses ethanol-powered vehicles in its domestic market. If we follow suit, there might be a lot of changes in the economy. Many products may become obsolete while others back in high demand like tractors.

8 comments:

joseph said...

I think the question is: Can sell the idea of this so-called ‘green’ fuel? We discussed this matter in our organizational issues class and there are a number of arguments that suggest that the production of ethanol is not as ‘green’ as many people think and it will probably be just as expensive to produce as gasoline or diesel.
Even though it works in Brazil, which does not mean it will work in the US. In order to produce ethanol you need to grow corn first. This requires the use of agricultural machines: Petroleum. Second, in order to transform the corn into ethanol you have to burn coal. Third, the transportation requirements of this whole process costs energy. It appears that if you do a calculation of the total emission involved with the production and the use of the ethanol itself, the fuel appears to be a lot less ‘green’!
The second question is: Will it be cheap to produce in the US? Just because it work in Brazil does not mean that it will be cost efficient to produce in the US. The cost structures involved are probably not similar. I suspect that the production of ethanol will be a lot more expensive in the US and therefore less attractive.

TR said...

I agree with Joseph’s comment. I think that we are simply going to burn more petroleum trying to make ethanol than what is already being burned. I think that there are major problems with ethanol, Joseph stated many of them. I do think that we are doing the right thing in exploring new fuel sources though. If we only rely on crude oil for fuel we will one day pay the price. I think it is necessary to find alternative fuel sources. Ethanol might not be the answer, but it is taking a step in the right direction.

bend said...

I am also interested to see where this goes. Unfortunately I beleive this will be a short term shift in the buying of farm equipment. I agree with the other comments in that it seems it uses more petroleum to make the ethanol than the benefit it provides. These forces will soon cause the market and hype to shift where ethanol is no longer the hip thing. Farmers will then be stuck with excess machinery and debt and cause the overall economy to drop.

Hunter said...

As many other posters have said, I agree that the ethanol craze might just be a temporary thing. I don't agree, however, that this focus on ethanol is a bad thing. I am encouraged that so many people are searching for a way to improve our current system. For example, it seems to me that everyone is saying that ethanol is a terrible idea because it is too expensive and the benefits are too slim for us to keep pouring money into it. Instead, I think that it's a great idea to try new things and hope that they will be more efficient. If Edison would have stopped trying when he realized his first light bulb attempt was a failure, we might still be sitting in the dark.

Dr. Tufte said...

Ummm ... Sebastian ... one of the biggest interest groups pushing for more ethanol use is the agriculture industry.

This is big ethical problem because we give government support to this industry, and they are turning that money around to ask for more.

This is why there is such a big push for corn ethanol. Corn isn't the best place to get it from, by a long shot. But, we have lots of corn farmers, and they are flush with cash, and worried about the future.

Hunter has brought up a good point, but missed the principles of micro. Didn't every economics professor tell you that if prices rise you get more innovation?

FWIW: ethanol is only "cheap" to produce in Brazil because of not counting the huge sunk costs (paid by the government in the past) to get that industry going.

William said...

Dr. Tufte,
It makes me upset when I hear about small groups making a big grief about having the government help them, when in fact it is actually hurting everyone else (the majority). I think the government needs to rethink who it aids and stop helping small groups of people and instead look at everyone that is affected by their decisions.

Trinity said...

Dr. Tufte was right on the money. Brazil's government functions differently from ours. Who will pay the huge costs to get a new fuel, en masse, to the market. Also, there are better sources for the ethanol and farmers are just hoping to cash in on their ability to produce corn already. Hybrid and hydrogen propulsion will probably be much more effective in the near future.

Dr. Tufte said...

There's a whole field called Public Choice about how democratic systems are poorly equipped to make good choices when small vocal groups are involved.