by Michael Arbow, MBA
Partner, RSD Solutions Inc
Jeffery Rubin in his book “Why your world is about to get a whole lot smaller” talks about triple digit oil prices and the effects this will have on our economies one being the push to bio-energy; energy derived from plants such as corn, sugar cane, palm oil. Interestingly as the price of these commodities has risen the Chinese have sought out other plants capable of producing an oil substitute. They have recently moved to and focused on cassava, a tropical plant whose root we use for animal feed, tapioca pudding and ice cream. While the ingenuity is admirable the effects of this and new government regulations forcing the consumption of bio-energy is having distributing ramifications namely a growing trade-off between crops for fuel or crops for food. The upshot of this is an unstable equilibrium in food commodity prices which looks set to continue for the foreseeable future.
What all this means to the food processors and bio-fuel makers is that price volatility may become the new normal and having a better economic understanding of price movement causality may be beyond the skill sets of the accounting department and conceivably the more traditional risk management team.
For more on the food/energy trade-off click on the link to a New York Times article:
For more on Mr. Rubin’s thoughts on energy prices, click on the link:
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