How Might Increases in Fuel Costs Be Advantageous for American Society - Essay Example

Topic: How might increases in fuel costs be advantageous for American society There has been a protracted emphasis on the pervasive demerits of fuel price increase in US. Analysts have been underscoring the implications of soaring fuel prices on inflation as every product and service industry depends on this precious commodity. Studies have almost invariably so; been bent on exploring and illuminating the negative impacts of the increase of the price of fuel. The developments (fuel price surge) have nonetheless some notable and particulate merits for the American society. Without taking a utopian and unrealistic thrust, the core of the paper is aimed at delineating the merits of fuel price increases mostly for the US society although ripples of fuel increase will reach various economic domains in several countries the world over. The thrust at accomplishing set goals in pursuing the 'green world' philosophy and theory much based on the need to curtail the towering global climate upheavals has seen the emphasised shift in policy in various industry and agriculture fronts. The soaring fuel prices owing to the volatility of the oil prices have spurred government and energy as well as food industry stakeholders to consider alternative means of curtailing the predicament of escalating fuel prices. President George W. Bush has had the production of corn-based ethanol as part of the core of his energy policy. Hayashi Fumio (2007) notes, "This has brought in some merits on board. The resonating perspective is based on that the emphasis on corn based ethanol production has acute implications on the success of the attempts at throwing a holistic approach to the whole global 'green world' initiative". The scholar further notes that the emphasis of green solution even to the fuel predicament has thus put America society back in the lead in the efforts of making the world a better place. Despite the impact on the entirety of the national and international agriculture sectors the production of corn-based ethanol which has also been the part of the root causes of the escalating food prices has facilitated the invention of novel means in the commodity markets. The dynamic has seen significant investment by the government and stakeholders into the expansion of the corn production industry. Hayashi, Fumio (2008) notes that, '"This is a welcome policy reorientation given that this year alone over a million jobs were lost. The move will precipitate in the expansion of employment base for the American society". It is notable that the pressure from escalating fuel prices has necessitated the invention of feasible means of striking the balance between demand and consumption for fuel. Fig. 1 Ethanol Production Projections Source: national Agricultural Statistical Service [http://www.nass.usda.gov/Charts_and_Maps/Agricultural_Prices/pricecn.asp] Fig 2 Corn Price Trends Source: Shurson G.C. (2008) It is evident from the two direct-relationship graphs that the growth of the ethanol production industry has a direct impact on the price of corn. What is particularly notable from the statistics is that during the 2002-2005 periods when 4 billon gallons of corn-based ethanol were produced the price of corn was peaking from below $2 a bushel to about $3. Although the price took a lunge in the 2004-2006 phases the rise afterwards has been significant with corn price escalating from just about $2 a bushel to over $5. This is the period when corn-based ethanol production capacity was at an average over 5 billion gallons. Statistical interferences drawn from the trends and patterns illustrated on the graph show that holding everything equal, the production of corn-based ethanol will hit phenomenal figures of over 11 billion gallons by the end of the 2009 which may propel the price of corn way over $9 a bushel. "The growth of corn-based ethanol industry in tandem with demand in the US will lead to the expansion of the export GDP and thus help boost the strained US economy currently faced with a looming recession". Shurson G.C. (2008) The scholar has underscored that the pressure applied by the soaring fuel prices is leading to the invention and implementation of more effective means of developing the fuel industry through the application of novel approaches aimed at striking the balance between the demand and production proportions of fuel. In light with foregoing, Von Lampe, M (2006) notes that the production of corn-based ethanol has negatively affected U.S food prices in the current year as well as in previous years. He however notes, "The effects of the impact are likely to compel stakeholders and researchers into coming up with even more feasible fuel alternatives". The scholar also stresses that soaring fuel prices present an impetus for the development of the energy and food industries in light of the evident need to curtail the demerits of overdependence on oil for energy purposes. The scholar adds, "Research is likely to be directed into more renewable fuel alternatives which will trigger a complete overhaul of the entirety of the energy realms thanks to the biting fuel prices." Harris, Laurence (2007) notes that if corn stocks are increased it will enable the corn based ethanol production to grow without requiring significant complimentary adjustments in the corn market. Statistics of the gathered data show that he U.S. closed the 2004-2005 marketing year (MY-September 2004-August 2005) holding corn stocks of 2.1 billion bushels whish are enough to generate 5.7 billion gallons of ethanol. "For as long as corn is the principal feedstock for ethanol in the U.S., however, continued increases in ethanol generation will in the long run necessitate adjustments in the corn market." (Harris, Laurence 2007) Ferris, J.N., and S.V. Joshi (2008) present that further to that, the dimension that despite the upheavals and volatilities in the food and fuel markets and industries, ethanol production is still growing. "Archer Daniels Midland Co., Aventine Renewable Energy Holdings Inc. and other producers have contributed a sum of 1.2 bn gallons (4.54 bn liters) of capacity and 15 additional plants in March. The figures have corresponded with the total for the year 2006." (Ferris, J.N., and S.V. Joshi 2008) Stakeholders in the green world ideology have continued to make projections on the prospects of increasing corn production capacity to leverage the corn-based ethanol production industry. S.V. Joshi (2008) cites that US governments expects a production of a record 13,3 billion bushels of corn in the current year expecting about 25% of that to be used for ethanol production. Further to that the Fed government is projecting slight rise of the use of the proportion of the produced corn on livestock feed. The growth of the corn-based ethanol production industry has to be supported through the development and the growing of corn production. As the production of corn ethanol increases, the supply of ethanol related products will also increase. Hayashi Fumio (2008) notes that both the dry milling as well as wet milling processes off producing ethanol produce in the process various economically valuable by-products the most notable of which entail the distiller's dried grains with solubles (DDGS). These can be used as feed for livestock and thus ease the pressure exerted on livestock demand trigged by the use of much of its corn in the production of ethanol. Hayashi Fumio (2008), states that every 56-pound bushel of corn that is used in the dry mill ethanol generation process produces around 17.4 pounds of DDGS. "IN the US, cattle (for both the dairy and beef categories) have so far been the chief users of DDGS as livestock feed, but larger supplies of DDGS are finding their way into the feed rations of hogs and poultry as well" (Hayashi Fumio 2008). The rising corn needs of ethanol producers may be meet through higher corn output. Increasing production will assure some increase in U.S. corn production into the future even in a case where the amount of farmland used for corn remains constant. From a research perspective, It is expected that the dynamics that pertain to the growing corn ethanol production industry and the price of corn are complex and thus further researches must be conducted specially on the dimensions of the export factors and the agricultural production factors. Such researches will help in a coming up with a holistic approach to the explorations of the surmised and existent relationships (as well as implications) of the direct interplay between the continued usage of corn in ethanol production and the price of corn and food as well. The same applies to the dynamic on the positive implications of fuel price increases for the US society. In the theoretical premise of macroeconomics among other sub-theoretical domains of significant proximity to the dynamics of the fuel production and distribution industries; the rise of fuel prices nonetheless has adverse fiscal costs for states and citizens. The ripple effects of the surge of fuel prices trigger inflation which cuts down on consumer spending and thus causing business constrictions. Many businesses have to scale down operations to cope with the low business ebb. The worst case scenario culminating from the soaring fuel prices dynamics has deteriorated in many cases in gross job losses and company closures. These have adverse impact on a country's GDP and hence economic growth, which in turn has a significant bearing a society standard of living. Overly though it can be stated a that a proactive approach to the predicament of soaring fuel prices will yield positive and feasible energy solutions and development that will contribute to the multi-dimensional development of the US society. References Eidman, V, "Agriculture's Role in Energy Production: Current Levels and Future Prospects." Paper presented at a conference Energy from Agriculture: New Technologies,Innovative Programs and Success Stories, St. Louis, MO, 2007 Elobeid, A. and S. Tokgoz, "Removal of U.S. Ethanol Domestic and Trade Distortions:Impact on U.S. and Brazilian Ethanol Markets." CARD Working Paper 06-WP 427, Center for Agricultural and Rural Development, Iowa State University, 2006 Shurson, G.C, "Overview of Production and Nutrient Content of DDGS-Poultry, Swine, and Ruminants." 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