Report fires up biofuels debate

Tuesday, January 31, 2012

by SUSAN MANN & BETTER FARMING STAFF


A George Morris Centre study, published on Tuesday, and blaming ethanol production for raising livestock production costs, has lit a fire under a simmering debate in rural Ontario.

In a news release on Wednesday Grain Farmers of Ontario chair Don Kenny states “there are so many examples of erroneous information” in the George Morris report “that I am disappointed Canadian livestock producers would choose to point a finger at the ethanol industry as the culprit for lost revenue.”

The George Morris Centre, a Guelph think tank on agriculture, blames the livestock losses on a reduction in livestock feeding margins. The Canadian Pork Council, the Canadian Cattlemen’s Association and the Canadian Meat Council funded the study. The authors are: Kevin Grier, senior market analyst, Al Mussell, senior research associate, and Irena Rajcan, senior research analyst.

The Canadian renewable fuels industry association describes the study as “outrageous.”

“Economics 101 would suggest that if you buy grain to do something clearly it’s going to have some effect,” says Tim Haig, interim president of the Canadian Renewable Fuels Association. “But to have this kind of effect, that’s crazy.”

Haig says the Canadian dollar moving from 80 cents to being at par with the United States dollar and oil prices increasing to US $100 a barrel has a bigger impact on grain prices than ethanol production. “Speculation in the commodities market has driven up all commodities.” And increased fuel costs have driven up feed costs more than anything, he says.

Haig says a Conference Board of Canada report released November 2011 notes the ethanol industry in Canada increased wealth by $2.3 billion.

Mussell says the George Morris authors acknowledge in their report there are a lot of factors that influence the basis levels for corn in Ontario and feed grains in Western Canada. “We’re trying to drill down on the ethanol influence.”

The study found that Canadian ethanol production increases the price of feed grains in Eastern Canada by about $15 to $20 a tonne and in Western Canada by about $5 to $10 a tonne. 

Federal and provincial governments support the Canadian ethanol industry through subsidies, grants and a mandate that gasoline contain five per cent ethanol. The government support creates a “subsidized competitor for Canadian feed grains that form the basis of Canada’s export-based livestock and meat industry,” the George Morris report says. Expanding the mandated use of ethanol in gasoline to 10 per cent from five “will result in a serious reduction in feed availability in Eastern Canada. This will result in a dramatic reduction of cattle and hog feeding in Eastern Canada.”

The study says the bottom line is federal and provincial ethanol policy has resulted in reduced incentives for livestock production in Canada. Expansion of the ethanol industry will amplify the negative consequences.

“Governments must realize that the red meat industry developed over a long period of time and if it were to drastically decline it would take a very long time to return,” the study says.

Jean-Guy Vincent, Canadian Pork Council chair, says grain is the largest cost component of raising pigs and farmers can’t pass added costs on to customers. Producers have to absorb heavy losses or get out of business.

In a Jan. 31 press release, the Canadian Cattlemen’s Association says there should be a market-based biofuels industry. Government policy that helps biofuel producers buy feed grain “favours that industry at the expense of the livestock and meat sector.”

Ontario Ministry of Agriculture, Food and Rural Affairs spokesperson, Susan Murray, says by email the provincial government recognizes the ethanol industry provides a valuable source of renewable energy. “We are reviewing this report and will consider its findings as we move forward with green energy initiatives in Ontario.”

A study by Terry Daynard, former executive director of the Ontario Corn Producers Association and KD Communications for Grain Farmers of Ontario last year concluded grain based fuels have only a marginal impact on food prices. Mussell says Daynard, a former professor at the University of Guelph, didn’t ask them for input and “we didn’t offer any.” But Mussell says he doesn’t know how Daynard thinks “you can mandate a new use for corn and somehow it just doesn’t influence the corn basis whatsoever.”

The battle lines between grain and livestock farmers are not clearly drawn. Many farmers who have livestock also grow grain, Grain Farmers’ Kenny notes. Nor have the environmental benefits been taken into consideration. “Let’s not forget that the five per cent ethanol mandate is reducing greenhouse gas emissions by over two million tonnes each year,” the equivalent of taking off 440,000 cars from road, Kenny says. BF