Jason Barton

Professional Information and Energy News

Comparative Advantage vs. Domestic Food and Energy Security

with 3 comments

A foundational principle of economics is that institutions, from nations and states down to households, are better off by trading on comparative advantages. For example, if one state is better at producing grain and another at producing vegetables, because of climate, labor costs or skills, infrastructure, or other aspects, then each should produce the products where it has an advantage and then trade with the other. People far smarter than me have demonstrated the benefits of these practices with abundant empirical evidence.

In the cases of the necessities of food, water, and energy, however, recent history illustrates the potential dangers in relying too heavily on distant sources. Lengthy supply chains are simply much more tenuous, and when supplies are centralized, they become even more susceptible to disruption.

In the U.S. today we see this in several clear examples in the realms of both food and energy, and especially in the overlap between the two.

Even domestic electricity transmission is extremely inefficient, with two-thirds of our electrical power lost before it reaches it destination, as is shown in the figure below from the U.S. Energy Information Administration (E.I.A). Drawing upon resources within municipalities and thus shortening the distance electricity has to travel could go a long way to improving the situation. Using less energy, by shortening supply chains, turning off lights, etc., will be a huge help.

From the U.S. Energy Information Administration, 2008

Petroleum is another great, or unfortunate, example. It’s been said time and again that we need to end our reliance on foreign, often very unfriendly governments for our oil supplies. Some use this to make the case for domestic drilling, others for alternative sources of energy. The article below, which inspired this post simply by its title, urges technological development that will allow us to extract natural gas from shale.

While each may have its merits, it’s been the belief of this author to make the case first for increased energy efficiency, using less energy, before thinking about other sources.

Either way, relying less on foreign energy sources, and more on domestic, decentralized sources, seems a wise idea.

The same can be said for food. Again, even domestic interruptions to our centralized food supplies have caused significant problems just in the last few years. How many months in 2006 did we go without spinach, across the U.S. and Canada, because of E. coli outbreaks killing 3 people and affecting hundreds of others due to problems in only one facility in California?

Developing nations, too, have much to gain from domestic food production. They may have great advantage in production costs, meaning that they should export at least some of their crops, but it is similarly important that countries in Africa, Asia, and Latin America not be dependent on foreign sources for the necessities. Images of airplanes delivering bags of grain to areas that have been stricken with drought for decades beg the question if it’s viable to continue delivering food to these places, or if there are better ways to help these people help themselves attain domestic food security.

As many have pointed out, if we source our food from a variety of local farmers, in whatever country we live, we are much less susceptible to disruptions in our food supplies. The advantage to ecological and human health from eating fresher food that is not transported such long distances is another huge factor to consider, as is discussed in this report from Iowa State University. They found that conventional food travels an average of nearly 1500 miles. That’s a lot of fossil fuels, and that food is far from fresh.

Capitalizing on comparative advantage in clothes, electronics, and other products, used wisely and produced responsibly, has considerable value, as does trade in food and energy, to an extent. But the security of these necessities is far too important for us to rely on such distant and fragile supplies.

This post was inspired by the article below from The Economist. While this post is only tangential, the article points out the additional, significant, economic advantages to be gained from energy independence. The figure below, from that article and the U.S. E.I.A, shows that we may be on the right track in terms of domestic production vs. imports, though the finite nature of these resources demands that, within the next generation or two, we will need to make further, substantial improvements in this area.

Clearly we're much less dependent on foreign energy today than we thought we would be five years ago, which is great news, though we still have a long way to go.

Sitting here today in Brazil, it’s been interesting to see how resilient their economy has been in the last couple of years, barely feeling the global economic crisis. Could it be that this has much to do with their 2005 declaration of energy independence? Maybe it is related to their immense agricultural production, having been called by publications such as Forbes and The New York Times, ‘the world’s supermarket.’ While there is still poverty and the disparity in income is troubling (though so is ours in the U.S.), starvation is almost nonexistent, contributing to an able work force and one of the world’s fastest growing economies.

Whether you’re an economist, a nutritionist, a farmer, an engineer, or someone who occasionally eats and/or uses energy, food and energy independence are indeed important to all of us for so many reasons.

A special report on America’s economy

Energetic progress

There is every chance that in future energy will contribute less to America’s trade deficit

Mar 31st 2010 | From The Economist print edition

JUST off the freeway in south-western Pennsylvania a quiet country road leads past picturesque barns and horses in snow-covered fields. Turn right near the top of a hill, and a dirt road seems to take you straight to Texas. An orange drilling rig the size of a block of flats hulks over the countryside, slowly chewing its way a mile below the ground. The roar of portable generators fills the air. The roughnecks in blue overalls here have chased gas from Alaska to Nigeria. Nowadays, Pennsylvania is “the hottest area in the United States, if not the world” for gas, says one.

[…]

The drive to import less

The oil shocks of 1973 and 1979 galvanised America’s politicians into trying to reduce the country’s dependence on imported oil. In 1975 Congress introduced the first corporate average fuel economy (CAFE) standards for cars. Electric utilities cut their use of oil and domestic production rose. But after prices crashed in 1986 conservation efforts petered out. Average car fuel economy declined, and imports began an almost continuous two-decade climb.

Read the entire article here.