Chapter 10

The following stories have links with Chapters 3 and 10 as this is essentially a story about demand and supply, however, there are also links to the story of OPEC and the high price of oil (Case Study 1 in Chapter 8 on page 173-6), to the principle of substitution in Chapter 6 as this is about finding a substitute for high priced oil. They are also related to the issue of long term growth and global warming Chapter 26 page 603-4 as biofuels may not reduce carbon emissions but they are a renewable resource.
The background to the surge in interest in biofuels is two important trends: First, the high price of oil and the problems that burning fossil fuels cause for the environment; second the fact that oil is an exhaustible resource which will eventually run out and so we need to find energy sources which are renewable in the long term. The current round of reports generally relate to the fact that high oil prices have created an incentive to seek substitutes and one possible substitute is ethanol which can be extracted from various crops, including corn and wheat. The greater demand for these crops has then lead to their prices rising and this has both raised the cost of the food products that use these as inputs directly and it has raised the prices of animal feeds which has put upward pressure on meat prices. Higher food prices have had particular effects on poor people in countries such as Mexico and China.
Financial Times, Friday, February 23, 2007
www.ft.com/cms/s/997406be-c29c-11db-9e1c-000b5df10621.html
The Times, Friday, March 2, 2007
business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1459141.ece
Financial Times, Tuesday, March 27, 2007
search.ft.com/ftArticle?queryText=Changing+landscape%3A+why+worries+surround+rural+America%27s+biofuels+surge&y=3&aje=true&x=6&id=070327000564
Financial Times, Tuesday, May 1, 2007
search.ft.com/ftArticle?queryText=Tyson+says+rising+corn+costs+to+hit+meat+prices&y=5&aje=true&x=16&id=070501000505
The Times, Tuesday, June 12, 2007
www.timesonline.co.uk/tol/news/world/asia/china/article1917927.ece
Financial Times, Friday, June 29, 2007
www.ft.com/cms/s/52365a5a-25dd-11dc-b338-000b5df10621.html

The following three stories can also be linked with the "biofuels" stories which are relevant to Chapter 10 and they also have links to the "principle of substitution" which is discussed in Chapter 6 and relates to how high prices of an input lead to greater demand for substitute inputs and thus have spillovers into other markets. These reports have additional elements which include: a drought in Australia leading to higher world wheat prices, and bad weather in the UK increasing demand for cakes as comfort food. Higher wheat prices have knock on effects in products (other than biofuels) that use wheat and other grains as inputs.
Financial Times, Tuesday, July 10, 2007
www.ft.com/cms/s/d70a1570-2e7d-11dc-821c-0000779fd2ac.html
The Times, Tuesday, July 10, 2007
business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article2051166.ece
CNN Money, Tuesday, July 31, 2007-08-22
money.cnn.com/2007/07/31/news/economy/wheat_prices/index.htm?postversion=2007073114

The following story gives a broader international context to the biofuels stories.
Financial Times, Wednesday, August15, 2007
www.ft.com/cms/s/0/9d17df58-4ac7-11dc-95b5-0000779fd2ac.html

A new twist on the biofuels story comes with an article about a new plant which may be planted widely to provide renewable source of biodiesel.
The Times, Saturday, July 28, 2007
www.timesonline.co.uk/tol/news/world/article2155351.ece

The following are about finding renewable energy sources as a substitute for oil. Energy is an input into all productive activities including transport and is needed for domestic heating. The demand side of this market can be analysed through the principle of derived demand discussed in this chapter.
Financial Times, 4 January 2008
search.ft.com/ftArticle?queryText=Grains+lifted+to+highs+as+oil+surges%21+&y=0&aje=false&x=16&id=080104000092&ct=0
Financial Times, 31 October 2007
search.ft.com/ftArticle?queryText=Biofuels%3A+an+everyday+story+of+special+interests+and+subsidies&y=4&aje=false&x=15&id=071030000688&ct=0
Financial Times, 7 November 2007
search.ft.com/ftArticle?queryText=Biofuels+can+match+oil+production&y=4&aje=false&x=21&id=071106000507&ct=0
Financial Times, 23 November 2007
search.ft.com/ftArticle?queryText=Fuel+crops+cultivate+hopes+and+fears&y=8&aje=false&x=25&id=071123000068&ct=0

There has been a flood of articles about higher grain and other food prices since November 2007. Here are just some:
Financial Times, 1 December 2007
search.ft.com/ftArticle?queryText=World+food+price+rises+set+to+hit+consumers&y=3&aje=true&x=13&id=071217000167&ct=0
Financial Times, 27 November 2007
search.ft.com/ftArticle?queryText=Soyabeans+to+stoke+food+price+inflation&y=7&aje=false&x=3&id=071129000173&ct=0
Financial Times, 30 January 2008
www.ft.com/cms/s/0/1f373678-ced5-11dc-877a-000077b07658.html
Financial Times, 6 February 2008
www.ft.com/cms/s/0/ff4d003a-d457-11dc-a8c6-0000779fd2ac.html
Financial Times, 18 January 2008
search.ft.com/ftArticle?queryText=Soaring+soyabean+price+stirs+anger+among+poor&y=10&aje=true&x=10&id=080118000292&ct=0
The Times, 18 December 2007
business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3065334.ece

The following indicates an attempt at a strategic reaction from the oil producers' cartel OPEC (Chapter 8 for OPEC, and also relevant is the discussion of strategic interaction in Chapter 9 under "Oligopoly") who clearly felt threatened by the wave of interest in finding substitutes for oil. The report implies that OPEC would not invest if they thought their market was threatened and this would drive oil prices even higher. However, the paradox is that even higher oil prices would create an even bigger incentive to seek substitutes, so it is not clear that this is a very sensible line for OPEC to push.
Financial Times, Wednesday, June 6, 2007
search.ft.com/ftArticle?queryText=Drive+on+biofuels+risks+oil+price+surge&y=5&aje=true&x=9&id=070606000835

Also mainly linked to Chapter 10, (but also to the case study on steel in Chapter 3 pages 57-8), are recent stories about metal prices. Here the story is that the weakening of world output has led to a fall in metal prices:
Financial Times, 24 November 2007
search.ft.com/ftArticle?queryText=Where+next+for+commodities+after+price+blip&y=7&aje=false&x=26&id=071124000247&ct=0
Financial Times, 23 November 2007
search.ft.com/ftArticle?queryText=Zinc+and+copper+prices+start+to+buckle+as+base+metal+demand+falls&y=2&aje=false&x=7&id=071123000124&ct=0

Potential sources of energy that can substitute for coal and oil are a major topic of interest. This links to stories about high oil prices and biofuels in Chapters 3, 6 and 8, and links directly to the case study on page 224.
The Independent, Wednesday, January 30, 2008
www.independent.co.uk/news/science/new-power-generation-alternative-energy-sources-775540.html
The Guardian, Wednesday, April 30, 2008
www.guardian.co.uk/technology/2008/apr/30/greentech.scienceofclimatechange

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Oxford University Press, Online Resource Centre, Chapter 10.

Chapter 10