Did you read Part 1, The Coming Collapse of the Middle Class? That tells an interesting story of what’s happened to the middle class since the 1970s, and how much harder it is for people to keep up now.

With that background in mind, I think the price of oil rising to $147 per barrel was the straw that broke the camel’s back.

Once that happened, some folks could no longer make their house payments, and from there everything started to come apart. People blamed the greedy bankers, hedge fund people, the slicing and dicing of credit instruments, etc. And to a large extent that was true.

But the people on the bottom of the pyramid, the middle class, were already stretched too thin. They had no place to turn. So foreclosures started.

Here in Hawai‘i, we have many of the same problems as the nation as a whole. But, to their credit, our banking institutions stuck to the old-fashioned requirement of qualifying lenders to make sure they could make payments before they lent money. Had they not done that, it would have been much worse.

Now we have to figure out what we are going to do to help our people, and to make Hawai‘i a place our children and grandchildren will be able to afford when they grow up.

The most important consideration is that we depend on oil here for most of our power. We know that we need to get off foreign oil.

Electric cars are an idea that do seem feasible here in Hawai‘i, and we think they will work.

Another idea that keeps being discussed, and one that concerns me, is replacing fossil fuel oil with biofuels. Several years ago, a bunch of us farmers sat in a meeting where biofuels were discussed as a possible new crop for Hawaii’s farmers.

We were told that palm nuts could generate x amount of production per acre and that jatropha could generate x amount of production per acre. We knew these were a soft answer at best.

I believe that oil was close to $100 per barrel then. We did this simple, back-of-the-napkin calculation:

If oil was $100 per barrel, this equals 35 cents per pound. We farmers made a quick calculation: What if it took four pound of stuff (palm nuts, jatropha, kukui nits, whatever) to squeeze out one pound of oil. At $100 per barrel oil, no farmer in his right mind would grow biofuels to get 9 cents/pound for their crop. At $200 per barrel for oil, the farmer would only get 18 cents per pound.

The conclusion then is that by growing jatropha, kukui nut, macadamia nut and palm nuts for biofuel, farmers lose money. No farmer would grow these crops for these returns!

How about the second generation cellulosic biofuels? A couple of things bubble up. They can be produced for $10 – $20/gallon. But the required volume throughput needs to be huge, and the plantings need to be close to the refinery to be efficient.

The Hamakua Coast is very hilly and its high rainfall took a toll on sugar companies; that’s why sugar went out on the Big Island. The location was just not competitive relative to other places in the state of Hawai‘i.

As much as we want to get a liquid biofuel source, we do not think it will work in the long run. Biofuels are not the answer.

Stay tuned for Part 3, where we’ll discuss what the answer might actually be.