Ethanol and wealth creation

In The Economist, an article about ethanol, Fuel for friendship

Firms around the world are trying to make biofuel out of everything from trees to cooking oil. To make ethanol from corn or wheat, as Americans and Europeans tend to do, distillers must first convert the starch in those crops into sugars. But Brazilian distillers dispense with this expensive step, as they use sugarcane as a feedstock. So Brazil can produce ethanol for 22 cents a litre, compared with 30 cents a litre for corn-based ethanol, according to Icone, a Brazilian think-tank. That makes it cheaper than petrol, and therefore lucrative for farmers without subsidies.

U.S. sugar is too expensive to convert to fuel, thanks to a complicated system of tariffs and quotas that keeps the U.S. price of sugar artificially high, and the US can't produce enough sugar to meet an increasing demand in ethanol. Those are two reasons why import it.

However, as I mentioned in yesterday's Blog Talk Radio with WC of The Gathering Storm, the ethanol produced in Brazil is subject to a 54-cents-a-gallon US tarriff.

Since Brazil's ethanol has too much water (and is quite similar to rum), the way to get around this tarriff is for Brazil to ship its ethanol to dehidration factories in one of two dozen Caribbean countries that are exempt from the tarriff, and then take it to the US by tanker where a gasline refiner makes it undrinkable and blends it with gasoline. The blended ethanol is then shipped to gas stations.

The lobbyists are to blame for this tarrif:

The ethanol industry not only receives billions of dollars in subsidies each year, but governmental protection from international competitors as well.

But back to The Economist,

Brazil is not the only country in Latin America that sees great promise in ethanol. Colombia now has five distilleries amid the sugarcane fields of the Cauca Valley, which produce 360m litres a year. Two more are under construction elsewhere. These producers are guaranteed a market, since regulations oblige fuel merchants to mix ethanol into petrol. By 2009 the required blend will be 10% ethanol and will gradually rise to 25% thereafter. Costa Rica has a similar policy, and Panama is contemplating one.

Indeed, since sugarcane is grown throughout the region, most Latin American countries could benefit. A recent study from the Inter-American Development Bank argued that replacing 10% of Mexico's petrol consumption with locally refined ethanol would save $2 billion a year and create 400,000 jobs. Several Caribbean governments hope that the ethanol boom could help revive their ailing sugarcane farms.

The greatest lure would be access to the American market. Various Central American, Caribbean and Andean countries can already send ethanol to America tariff-free, thanks to concessionary trade agreements. Maple, an American energy investment group, plans to spend $120m on an ethanol plant in Peru to take advantage of such a waiver. A pipeline running out into the nearby Pacific Ocean will deliver the plant's output directly to tankers bound for America. Proponents of the project say it will create 3,200 jobs. If all goes well, exports could reach 120m litres a year by 2010, and perhaps as much as 400m in the more distant future.

The United States, for its part, has several reasons to encourage ethanol production in Latin America. For one thing, it will need seven times more of the stuff than it currently produces to meet Mr Bush's 35 billion-gallon target. There simply is not enough spare land in America to grow adequate feedstock for such an amount, unless scientists find a way to make ethanol cheaply from abundant materials such as wood or grass. Although Mr Bush's ultimate goal is energy independence, he would presumably prefer to be dependent on ethanol from friendly countries such as Brazil and Colombia than on oil from hostile places like Iran and Venezuela.

An ethanol boom in Latin America would also attract investment to rural areas and create lots of jobs. That might help to reduce the steady northward stream of illegal immigrants. It would certainly burnish America's image, and stem support for anti-American tub-thumpers such as Venezuela's Hugo Chávez. He has won friends throughout the region by selling oil cheaply. By sharing technology and promoting investment in ethanol, America would also be reducing Latin America's fuel bill. If it bought lots of ethanol from its neighbours, it would be providing them with a lucrative export of their own.

Secretary of State Condoleezza Rice and her Brazilian counterpart signed an energy agreement making ethanol an internationally traded commodity.

This can be a first step that the US takes to unleash a new area of prosperity in Latin America. Let's create free markets, and create wealth by abolishing all farm subsidies and trade barriers with Latin American countries that are willing to provide property rights, democracy and the rule of law for their citizens.

President Bush went to Brazil and will also visit Uruguay, Colombia, Guatemala, and Mexico. Robert Mayer has more thoughts on the subject.
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In yesterday's Blog Talk Radio show with WC of The Gathering Storm, I mentioned several books:
Journalists Plinio Apuleyo Mendoza, Carlos Alberto Montaner, and Alvaro V. Llosa's

Peruvian economist Hernando de Soto has written several books that I highly recommend on the subject of property rights, rule of law, capital creation and free markets:


Later in the conversation we talked about Dinesh D'Souza and Robert Spencer, who I met at CPAC last week. Their books are:
Dinesh D'Souza

and
Robert Spencer

The Che myth

Michelle Malkin blogs that Target's pulled the Che CD case but still carries the Che Calendar.

Nothing shows what an ignoramus you are like having a Che Calendar hanging on your wall.

Yesterday I was talking to Mary Anastasia O'Grady of the WSJ, and I asked her, what book would she recommend for a quick primer on Che? Mary's choice is The Che Guevara Myth and the Future of Liberty by Alvaro Vargas Llosa, published by The Independent Institute. I read the whole book (67 pages of text) in one sitting last evening.

As it turns out, Alvaro had an epiphany because of Che's image hanging on a wall (page 2):

A few years later, I spent a semester studying at an American university. Che Guevara made a new attempt to seduce me. This time, my friends were mostly politically active Puerto Ricans who wanted their land to be independent.

It never ceases to amuse me how many independentistas come to the USA for college. But I digress.

One of them hung a poster of Che Guevara on his wall and, next to it, a picture of "Comrade Gonzalo", the genocidal leader of Shinning Path, Peru's Maoist organization.

And that's another thing: the rich Marxists. When I was at the University of Puerto Rico, one of the most Marxist guys around drove a convertible Jaguar. Now, when you realize that a Jaguar in Puerto Rico at that time cost twice what it cost in the continental USA, you really appreciate the meaning of the word irony. Alvaro continues

As I came into the room one afternoon and this couple [Che and "Comrade Gonzalo"] faced me from the wall, I was paralyzed. It suddenly downed on me why my South American friend from boarding school had never been quite able to persuade me to take up Che.

There it was, pure and simple: just like Abimael Guzman, Che was the negation of what I most seemed to long for in this complicated word - freedom and peace. I must have vaguely sensed this at school, but now, for the first time, I was able to fully grasp a precious truth: one should never be confused by the many variations of that species: the tyrant. Stalinist Che Guevara and Maoist Abimael Guzman belonged to different camps and represented contrasting attitudes to life - the former being the quintessential pinup, the latter a bizarre recluse - but what they had in common, their lust for totalitarian power, was much more important than their differences.

I had experienced firsthand Shining Path's campaign of terror against the very poor peasants in whose name it purported to act. Like millions of Peruvians, I had personally been affected in different ways by this unlikely reincarnation of Cambodia's Pol Pot in the middle of the Andes. Seeing Che Guevara next to Guzman on a chic campus wall brought to light the ugly truth about the Argentine hero of the Cuban Revolution, but, more importantly, it inspired the poignant realization that all those prepared to use force to take life and property from their fellow men are soul mates whatever the ideological or moral subterfuge used to conceal their real motives. "Really, you should rip that off. You have no idea," I said to my friend, and I left the room quite disturbed.

Many years later, when I had the chance to encounter numerous other disguises for tyranny, some on the left but others on the right, I focused on that image from university as the starting point of a larger reflection. The conclusion I reached continues to haunt me today: there are myriad forms of oppression, some much more subtle than others, sometimes adorned with the theme of social justice and at other times obscured by the language of security, and recognizing and denouncing the deceitful psychological mechanisms with which the enemies of liberty attempt to bamboozle us into voluntary servitude is one of the urgent tasks of our times.

I highly recommend The Che Guevara Myth and the Future of Liberty