The Economics of Sawdust

I was in Vermont over the weekend and talking to a dairy farmer about the rising price of milk.  I was surprised when she said that higher sawdust prices was one of the causes.  Sawdust?  Sawdust, it turns out, is used for bedding the cows and the price of dust has doubled in the past year.  I surmise that the downturn in housing construction has meant a reduced demand for lumber and thus less sawdust.

The connection between the housing market and the milk market is an interesting example of the dense connectedness of markets, "general equilibrium" in the language of economics.

The economics of sawdust also reminds us that the capitalist production system minimizes waste – entrepreneurs search out ways to extract the most value from every input and from every output.  Thus even sawdust, as trivial a waste product as one could imagine, is turned into an input into milk production as well as into particle board, fuel nuggets, mulch and other useful products.

Addendum: The WSJ has more on sawdust.