Ethanol no friend to Ontario’s meat sector says economist

by KATE PROCTER

Ontario pork and beef producers, already bleeding red ink for several years, can expect no light at the end of the tunnel, according to a recent report released by the George Morris Centre in Guelph. Subsidized ethanol production in the province will place the red meat sector at such a competitive disadvantage that severe downsizing will be the only viable option.

Is ethanol production in Ontario a bad idea? “Yes,” said Al Mussell, senior research associate with the George Morris Centre and lead author of the report titled “Crowding Out: The Real Ethanol Issue in Canada.” The report predicted a net cost to the Ontario economy of between $148 million and $156 million per year due to reallocating corn from the red meat sector to ethanol production.

“Ontario producers face a far worse situation than U.S. producers,” said Mussell. Ontario has historically been a net exporter of corn and the red meat industry was built on this market condition. Now, increased demand for corn due to ethanol production has changed Ontario from a corn exporter to a corn importer. “We are literally cementing an import basis on corn,” he said. “There is no feasible way an export-based livestock industry can exist with import-based corn.”

While this situation has existed since 2001, Mussell explained that it has been buffered largely by producers who are committed to the livestock industry and grow their own feed. “Especially in cattle and farrow to finish operations, these have been peoples’ life work and they are loath to give it up,” added Mussell. These producers have been giving up selling at recent higher grain prices and feeding it to livestock, but this will get tougher as crop input prices continue to rise and high grain prices drive up land values.

“Personally, I don’t mind the high corn price because eventually the high price of corn gives a high pig price,” said Gilbert Vanden Heuvel, a farrow to finish producer near Goderich. Vanden Heuvel, who has 1,400 sows and grows all his own corn, explained that as a land-based producer, he has a competitive advantage over larger operations that do not grow their own feed. 

Will corn prices ever reach a point that lead him to stop feeding it to pigs and sell it as grain? “I am a pig farmer not a cash cropper.  Not to go insane, I have to keep telling myself that,” he said.  Vanden Heuvel said in the long run, the pigs will make him more money than selling corn. “I have to stick with my business plan.” 

“We have good staff, a good production system and we have a competitive advantage as a land-based system.  I have very little advantage as a corn producer.”

Mussell argued, however, that Ontario producers are facing a different production environment than the one in which the industry was built. Because the United States has traditionally produced meat mostly for its domestic market, eventually higher feed prices are passed along and the price of meat also goes up. Mussell suggested Ontario producers, as exporters, do not have this option, putting them at an even greater competitive disadvantage.

Ethanol production is subsidized and policy-driven, which means that a reversal of government policy is required to turn this situation around. Mussell refused to speculate as to whether the outcome of Canada’s federal election, set to take place on Oct. 14, would have an impact on this situation.

Mussell stressed that it is the price of corn in Ontario relative to the price of the corn in the rest of the world that will be most damaging to the red meat sector. “We get to pay more than everybody else for feed. That is what stands to decimate us,” he said. 

The full report can be found at www.georgemorris.org. BF