Still More Ethanol Dominoes--Starbucks Edition

This is just getting to be fun*.  Bad ethanol policy leads to increased demand for corn.  The price of corn goes up which raises the price of feeding livestock, like cows.  The increased cost of feeding cows leads to higher prices on cow related prodcuts, like milk.  Higher milk prices leads to higher prices on products that use milk, like STARBUCKS coffee:

Starbucks Corp will raise U.S. prices on coffee, lattes and other drinks by an average of 9 cents a cup next week to help offset soaring costs for milk and other commodities, a spokesman said on Monday.

The widely anticipated move marks Starbucks' second price increase in less than a year and comes a month after the coffee shop chain's chief financial officer warned it would be "very challenging" for Starbucks to meet the high end of its 2007 earnings forecast, in part because of rising dairy prices.

U.S. milk prices have soared recently amid strong global demand for dairy products and higher production costs.

*See here and here and here for other ethanol domino posts.

Comments

[Ken Houghton]

Yes, it would benefit me personally but isn't it about time that Starbucks started giving a discount to black coffee drinkers? If milk is indeed the culprit, then the price of lattes and capuccinos should be going up, but coffee remains coffee.

[Food and Fuel America.com]

Increased costs for milk are not driven up by recent corn prices. But it makes a nice headline. Farmers are price TAKERS not price MAKERS.

Increased energy and labor costs, foreign demand and Australian drought have pushed milk products higher around the world. And, since there was an oversupply of milk over the past year, the dairymen have been reducing their herds.

Learn more about the milk issue at:
http://www.foodandfuelamerica.com/2007/06/why-milk-prices-are-high.html

Food and Fuel America.com
http://www.foodandfuelamerica.com

[Dave]

Price making/taking is not the issue. When input prices increase, output prices rise. In fact, if farmers were price MAKERS, output price would rise less than they would if they are price TAKERS (do a marginal cost increase in perfect competition vs. monopoly and you'll see this easily). Even if ethanol isn't a direct determinant of milk prices, cheddar cheese is, according to the article cited above. And if the price of cheddar cheese is part of the formula, and producers of cheddar cheese have to pay more to feed their cows because of ethanol and drought, which is causing hay scarcity, then in fact ethanol is causing higher milk prices). Nice try though -- I'm not shocked that a food and fuel cite says it's not ethanol's fault. Farmers are going to make a killing off of ethanol, so I wouldn't expect them to blame it for our higher food prices.

[Dave]

And from what I understand, the coffee drinks without milk aren't becoming more expensive, so black coffee drinkers shouldn't be impacted by it.

[Dano]

The nice consequence should be less meat consumption and less high fructose corn syrup in our diet, which is not a good thing, but a great thing.

Best,

D

[Simon]

Oddly, we hear little about these ethanol trickle down effects during the federal policy debate. The Senate Energy Bill contained a whole new set of renewable fuels targets, which though possibly limiting corn-based ethanol (the language is open to interpretation in my opinion) could make all manner of other crops attractive to ethanol producers.

[benamery21]

See the following milk-feed ratio graph from 1985 to present.

http://www.aae.wisc.edu/future/TRENDS/mlkfd_continuous.pdf

[benamery21]

Look into the legal cooperative cartel among dairy producers to drive up prices. Most (~70%) of the nation's milk supply participates in a program where farmers contribute funds to purchase reduced supply and higher prices. The program estimates that it increased milk prices by about 5% last year--An 800% return on investment.

http://www.cwt.coop/