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July 10, 2007
The interconnected economy - the soap opera
One of the characteristics of the global I-Cubed Economy is the interconnection among industries and production processes. An example of this surfaced in a Wall Street Journal story this morning -- Fuel Rules Soak Soap Makers. As part of the push to reduce our dependence on imported oil, the soap industry is getting hit from two sides. First is the rise in corn prices as corn is diverted to make ethanol. Higher corn prices means higher beef prices and, more to the point, higher prices for beef tallow (animal fat). The second is the movement to use animal fat directly as an energy source (specifically as a diesel additive). The result is higher prices for tallow:
Already, rising tallow prices "are causing a radical change in the structure of our marketplace," says Dennis Griesing, a vice president of the Soap and Detergent Association. He says some major U.S. companies are importing more-expensive palm oil as a tallow substitute. But that makes those companies more vulnerable to competition from soap makers in Indonesia and Malaysia, which enjoy better access to palm oil and have cheaper labor.
Alternatively, some soaps could be made from petroleum, which of course would mean more oil imports.
Somehow, I think there might be a net gain to the US to import less oil and more palm oil and soap. But I would like to see the numbers.
Posted by Ken Jarboe at July 10, 2007 11:26 AM
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