This post is the first in a new series, Raw Materials and Natural Resources in the Supply Chain, which explores the understudied and often misunderstood processes for sourcing natural resources that are used as raw materials by the industries that make the products we buy every day.
Raw materials affect every industry and every person’s life. Yet there is limited visibility into where these materials come from and what of the planet’s natural resources are used to create them. Because of this limitation on our visibility into the deep layers of the upstream supply chain, it can be difficult for firms to be transparent to customers about how products are made or trace the source of raw material when a product injures a consumer. Often the decision of where and how to source raw materials is fraught with tension over economic, political, environmental, legal, and ethical concerns. Based on my research, which spans over 14 years at the University of Tennessee, Knoxville, with many colleagues from around the world, I am sharing my thoughts on this fascinating and sometimes frightening topic.
A Shift in Production
I recently read an article by the Milwaukee Journal Sentinel about a man named John who grows corn on his 196-acre family farm in Wisconsin. John’s children are not interested in continuing to work on the farm. So, he’s considering leasing it for 30 years to a utility company that would replace his corn with solar panels to produce energy.
At first, it sounds like John is switching supply chains, moving from producing food to producing energy. However, Farmer John is already in the energy supply chain.
For the last several decades, corn raised on farms around the United States has been the primary ingredient for producing ethanol, an additive for gasoline that drives down the consumption and price of unleaded gasoline. Many people don’t realize that up to 10% of the gas we burn every day comes from corn raised by farmers like John in Wisconsin. In fact, over one-quarter of the corn grown in the state of Wisconsin goes to the production of ethanol.
But here is the catch: an automobile that uses solar as its power source produces 32 more miles driven than one using corn-fed ethanol. In terms of economics, the more efficient choice seems obvious: John should lease out his land.
Beyond agriculture, new options have presented themselves for John and his fellow farmers across the Midwest and Great Plains of the US. They’ve resulted in a common dilemma for those who own natural resources: What should we use our land to produce?
The rising demand for electric vehicles (EVs) allows Farmer John in Wisconsin to replace planting corn with installing hundreds of solar panels for generating clean energy. His decision has a positive impact on the natural world: electricity from wind and solar power is, according to at least one recent academic study, the only way for EVs to help the planet (burning mass amounts of coal to charge the batteries for our EVs does not help the environment).
Landowners in states like Nebraska, Wyoming, and North Carolina had previously harvested corn, wheat, and timber. Now some are turning to mining operations to extract the scarce and expensive metals—titanium, lithium, niobium, and rare earth metals—essential to EV batteries, wind turbines, flat-screen televisions, cellphones, and military aircraft. Lithium mines are being built in North Carolina, cobalt mines are being established in Idaho, and rare earth metal extraction is being done in Arizona and Wyoming. These operations have multiple benefits. They give US firms an available source closer to home and shield the country from political uncertainties in Russia and China. They help aging farmers in rural areas with fewer younger residents continue to run their farms for another generation. One small Nebraska town is even marketing the opening of a large niobium mine in their county as a “patriotic” effort to help the country.
Facing the Dilemma
On the surface, these changes to support sustainable energy and technological supply chains sound great. But these land-use transitions impact other supply chains and industries that depend on the natural resources from that land. Surges in demand for ethanol, for example, drive up the national and global price of corn. These increases affect millions of food-insecure, impoverished people around the world. A 2007 surge in ethanol demand led to a national outcry in Mexico after the price of corn tortillas—a staple of the country’s cuisine—soared. This may seem trivial to someone in a food-secure developed nation. But it is a significant concern for the government and leaders in developing nations who understand it could lead to upheaval.
The outcries are not limited to foreign nations. If you haven’t driven across Wyoming, Nebraska, or Iowa in the last 30 years, you may be shocked by what you see today. The rolling prairie lands planted with corn and wheat in the 1980s have been replaced by thousands of giant windmills—over 3,400 in Iowa alone. Solar panels are also starting to fill the landscape. Communities and farmers worry about when these devices become obsolete and are replaced by the next technological advancement. Will these communities be left with a junkyard of structures too large to remove from their once pristine farmland? This dystopian image is not the romantic vision of the American family farm that most of us envision, and rural communities are pushing back against the change. Some counties in Nebraska and Iowa have even voted to limit or ban wind and solar projects.
So here is the dilemma: our natural resources, whether renewable crops such as corn or non-renewable oil and metals, are limited. They are scarce. And they are used by a variety of industries that compete for access. The ability to grow crops, like Farmer John’s corn in Wisconsin, is entirely dependent on the quality and health of the soil, air, and water on the land itself. In contrast, our lifestyle, technology, and economy depend on the daily extraction of raw materials to feed the industries that produce our goods and employ our labor force.
But how can we wisely use our land and natural resources if we don’t know where our raw materials come from? How do we know that Farmer John and other landowners are making the best decisions about how to use their resources? And how do we eliminate and control illegal or unethical practices that might damage the land and the people who depend on it?
These are the questions that this blog series intends to explore over the coming months. I look forward to sharing my thoughts on interesting stories from around the globe about how and where natural resources are extracted and how they are turned into raw materials for our firms. Over the following months, I will explore the risks and implications of natural resource use for our economy, planet, and people and uncover fascinating stories about natural resources from around the world that are almost too amazing to be true.
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