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Oil Increases Hit More than Gasoline Prices

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Once again, oil prices are "surging," and once again the primary discussion focuses on the cost of gasoline. While the price of gasoline is the most direct visible aspect for individuals, it is certainly not the only one. Increasing fuel costs are a concern, but there are other costs and related crises that erode people's ability to survive. These are largely "indirect" costs only because they are media-framed as such.

As oil jumps around the $100 a barrel price and is expected to go higher, gas prices are expected to go up to at least $3.50. While that may or may not affect individual driving habits, it also effects the cost of everything moved by, and produced with oil. At the immediate top of the crisis list are heating oil and diesel. In the United States, awareness of the heating oil issue is in part regional. For example, the Northeast is more impacted that the Southwest. However, many older homes across the country rely on heating oil. The price of heating oil is directly impacted by rising oil costs.

Likewise, in the U.S., most private autos run on gasoline so the assumption is that skyrocketing fuel costs don't impact us. However, diesel makes up 28% of daily consumption. Much of that is in the form of transporting goods (big trucks and rail), public transportation (mass transit systems), construction (earth movers, graders, etc.), and agriculture (tractors, cultivators, etc). Increasing oil costs directly impact those sectors, and those costs pass through to end point consumers.

These end point costs are concentrated most heavily in the cost of food because food needs to be grown (cultivation equipment and fertilizer), harvested (harvesting equipment and transportation to processors or storage), processed and transported to market. At each point along the way, increasing costs of petroleum prices impact final cost. Therefore it is not surprising that we are hearing more and more about rising food costs and an advancing global food crisis.

The USDA predicts at least a 4% increase in food costs in 2008. However, this estimate came before the current spike.

The oil "crisis," which the corporate media refuse to call "peak oil," is having multiple effects. First, there is the direct effects of cost increases of oil as noted above. However, the growing gap between supply and demand, and the high cost of what is available, is driving the bio-fuels "revolution." This has placed the global food supply in direct competition with the global food supply, and the consequences are dire. Aside from the environmental destruction caused by tactics (such trying to increase agriculturally productive land, or the destruction of palm forests for bio-fuel production), cooking oils are equally sources for bio-fuel as noted in this from Reuters:


From Russia to China to the United States, consumers will be feeling the pinch of higher food prices in 2008, with cooking oil now joining corn, wheat, and milk on the growing list of food inflation culprits.

Rising food prices will hurt more in developing nations, where a larger share of incomes are spent on food, and analysts have warned of likely food shortages and political upheaval in impoverished areas.

Consumers were already paying more for cooking oils. But prices of processed and fried foods and those made from edible oils such as salad dressings and condiments will also be rising in the months ahead, economists said.


The rising cost of oil combined with the increasing demand on grain crops and food oil sources for bio-fuels, are further aggravated by global warming impacts. For example, the US gets much of its wheat from Australia which has been hit by an ongoing devastating drought. These increasing costs are only accelerating as noted in the above article:

Sara Lee Corp. has raised prices three times, for a total of 15 percent, since December 2006. The most recent increase, 5 percent, was announced last week but may not show up on grocery goods until next year, said Mark Goldman, spokesman for the company based in Downers Grove, Ill.

"We're talking about prices (for wheat products) that are double, in some cases triple a year and a half ago," Goldman said. Inflation is hitting the whole-grain breads that health-conscious consumers have been favoring.

Meanwhile, the price of oils, especially soybean oil, is expected to climb 5 percent to 6 percent as soybean farmers, seeking ample waves of gain, switch to corn.


So we have rising fuel prices, crops going to bio-fuel rather than food, and global warming, all pressing food prices higher. Two other issues are also driving up the cost of food. One is a U.S. energy policy that is subsidizing farmers for ethanol production, and the other is a dietary switch to meat.

Some analysts estimate that as much as 30 percent of the US grain crop will go toward producing ethanol this year, a doubling from 2006. IFPRI forecasts that if the world sticks to current biofuel expansion plans, the price of corn will go up 26 percent by 2020, and the price of oilseeds (such as soybean, sunflower, rapeseed) by 18 percent. If governments double efforts to produce this alternative fuel source, corn prices are expected to go up 72 percent and oilseeds by 44 percent in 12 years' time. (Why the era of cheap food is over)


As many of the world's poor are already spending a significant amount of their income on food, even a marginal increase in food costs can be devastating. For example:
A family in Bangladesh, for example, living on $5 a day, typically spends $3 of that on food. The 50 percent rise in food prices the world has seen in recent years takes a $1.50 chunk - nearly 30 percent - out of the family budget. (CSM)


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Rowan Wolf is an activist and sociologist living in Oregon. She is the founder and principle author of Uncommon Thought Journal, and a Senior Editor for more...)
 
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What policy approach should we take?... by Rowan Wolf on Saturday, Jan 5, 2008 at 2:04:28 PM
At first, when you mentioned the 'surge' i... by Robert Johnson on Sunday, Jan 6, 2008 at 11:23:57 AM