Ethanol Vs. Beer

One of the market distortions that is being caused by the government mandate for ethanol in transportation fuel is the rising cost of all kinds of food, including one of my favorites: beer.

According to the WSJ in a fascinating article from October 5th, 2007, small beer brewers are getting squeezed by dramatically higher prices of barley and hops.

Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch "craft beers," as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which will pare their profits.

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Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer's color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe.

The price of malting barley has increased by a whopping 75% in the last several months, from around $4/bushel to about $7/bushel. As a result, the price of small-batch beer is expected to increase, and some small beer makers are actually in danger of folding.

Wouldn't it be better to allow importation of Brazilian sugar beet based ethanol, tariff free, and leave more of our agricultural capacity for the tasty stuff?