Milk Prices Soar as Government Backs Ethanol

If you paid attention in Econ 101, you’ll know that price is directly determined by supply and demand. Sen. Charles Schumer must have done the required reading. Yesterday, the New Yorker blamed astronomical milk prices on a nationwide demand for ethanol.

Excited over the prospect of ethanol, the U.S. government has offered federal incentives toward the production of ethanol. Washington is eager to push the renewable resource as a fuel alternative and has spent millions on research and development of a strong ethanol industry. However, as ethanol demand increases, corn prices rise and dairy farmers must pay more to feed their cows. And so goes the price of milk. (Not to mention just about every meat, since animals are fed corn, and processed food, since corn oil is a ubiquitous additive. And it's not the only problem with corn-based ethanol, which has led to a sharp increase in water pollution, without substantially cutting into oil demand.)

According to a report in Newsday, Schumer plans to introduce a bill within days that would remove foreign ethanol tariffs, thus making ethanol less expensive, lowering the price of corn and subsequently lowering the cost of milk. The high food prices are largely a product of Congress' own making, and this is one way to both encourage alternative fuels and put a check on prices.

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