Let's start with a basic dilemma inherent in globalization -- the low prices for agricultural commodities created by overproduction. In this case, let's call the commodity "wine." Europe's wine producers are in a jam. Consumption of wine is decreasing in the European Union, but imports of cheap, good-quality wine from the New World are rising. Price pressure in a shrinking market is a recipe for a bad hangover. No lie: Guerrilla warfare by vintners who just can't take it anymore has broken out in France.
Hoping to keep prices stable, the European Union has been stockpiling unsold wine in huge "wine lakes" -- the current backlog is equal to one year of normal production. In recent years, authorities have begun to dispose of this excess wine through a process of "crisis distillation": The wine is converted to nonpotable alcohol suitable for industrial purposes. Increasingly, that means ethanol. (Thanks to BioPact for the tip.)
A week ago, the European Community's Management Committee for Wine put up for auction 18.3 million gallons of wine destined for ethanol production. And who would object to that? On the surface, this would appear quite different than the food price hikes spurred by the diversion of corn into biofuel production. The point here is to prop up the price of wine. And no one is going to go starving if that Cabernet costs an extra couple of euros.
The problem is, economically speaking, crisis distillation of ethanol from wine doesn't make sense to anyone except the vintners who are getting paid for their production by the government, and the BMW or Volvo drivers who might get a kick from filling their tanks with reformulated Beaujolais. It's an absurdly expensive way to produce a biofuel that can't possibly compete, in a truly free market, with Brazilian sugar-cane-derived ethanol or even sustainably produced Malaysian palm oil biodiesel (if there is such a thing). It's just a kludge, a quick-and-dirty way to get rid of wine stockpiles that manages to recover only some of the costs borne by government.
European Union Agriculture Commissioner Mariann Fischer Boel doesn't think it's a sustainable solution. Last year she introduced a comprehensive proposal to reorganize Europe's wine industry. One requirement would be mandatory "grubbing up," or uprooting of vineyards. There are also proposals to improve labeling and perhaps strengthen what are known as "geographical indications" -- brands that are proprietarily tied to specific regions of the world.
She needn't bother. This is a problem that will eventually solve itself. Nothing the EU does will work to prop up the European wine industry, in the long term, if consumers decide they'd rather swill a cheap Chilean or South African bottle of red instead of an overpriced French offering. But that's OK, because eventually all those vineyards sprouting around the world will get converted to more rewarding crops: biofuels that actually make economic sense.
Time for How the World Works to make the usual disclaimer: Biofuels are not the answer to the world's energy problems. Their production poses serious environmental challenges. In some cases, as with corn-based ethanol, making them may consume more energy than they produce. Balancing the boon that farmers get from higher grain prices with the hit that poor urban dwellers take from higher food prices is critically important, and will require government to make hard choices about wealth redistribution. Investing in energy efficiency, conservation, and wind and solar power may all be better initiatives to encourage with government incentives.
But it is difficult to see, in an energy-constrained future, how biofuels will not be part of whatever coping mechanism the world comes up with. Nine billion people who all want to drive a car, have air-conditioning and talk all day on their iPhones will demand so much power that the world will be forced to scramble for every source available. It also seems inconceivable, given the historical reality that the prices of all kinds of agricultural commodities the world over have been on a steady downward trend for decades, that the increasing value of biofuel feedstocks on a global market won't spur massive global production of those feedstocks.
Too much high-quality cheap wine available in liquor stores the world over doesn't seem to be the kind of long-term problem we're going to have to worry our heads about. If energy prices continue to rise, farming will truly become a growth industry. The tricky part will be coming up with global structures that encourage the right crops to be grown in the right places in the right ways.