Binkley Report


Alex Binkley is a foremost political and economic analyst. Readers will be aware that his columns in True North Perspective have foreseen political and economic developments in Canada. This week in ... 

The Binkley Report

Meat industry needs to live with ethanol production

Agri-business should focus on future not old quarrels

By Alex Binkley
True North Perspective

A recent report from the George Morris Centre in Guelph linking ethanol production and higher feed costs for the livestock industry, resurrects an old complaint and ignores the potential for a new economic driver in Canada.

The Centre’s report says raising corn and other crops to make ethanol raises the livestock industry’s production costs and reduces employment in the meat processing industry. It’s the same basic complaint as diverting crops into fuel production means more hungry people in the world.

What’s missing from the equation is why grain farmers, who are finally enjoying decent prices, have to forgo a revenue source. As well, the use of food crops in fuel production has likely peaked globally. It will decline as the alternate fuel industry learns how to make ethanol and bio-diesel from crop and wood waste and non food plants such as twitch grass and miscanthus as well as pond scum.

However, these developments aren’t going to happen overnight and it will take even longer without the encouragement of the government requirement for all gasoline to contain at least 5% ethanol. That’s scheduled to rise to 10% in a few years.

The way to think of bio-fuels is as the down payment to the development of a bio-economy. Alternate fuel processing plants are the first stage in building bio-refineries. If we don’t get moving on this as a country, we’re going to be left way behind.

The bio-economy, where plant material can be used to make everything from drugs to household products, has great potential if Canada ever gets serious about adopting it rather than blindly following the production driven economic model of today.

The Conference Board of Canada did a through analysis of this issue in a report released last fall. Perhaps the Morris Centre should have considered possible benefits for the livestock sector in a bio-economy.

One of the reasons feed prices pinch the livestock sector is that large feeding operations have to purchase much of their supply.

In 2008, bio-fuels were blamed when grain prices skyrocketed sparking higher bread prices and food riots. However, when grain prices dropped, consumer prices didn’t decline at the same rate. The same force is affecting the livestock industry.

Also, all the grain grown in Canada isn’t enough to make a big dent in global food shortages. The solution to that lies in encouraging better farm production practices in developing countries and ensuring that farmers there have proper storage facilities so they don’t lose half their crop to spoilage and rodents.

Responding to the Morris Centre report, the Canadian Renewable Fuels Association and the Grain Farmers of Ontario say many factors drive grain prices including “the high cost of fossil fuels, currency fluctuations, massive grain buys from emerging markets such as China, and non-commercial market speculators. In fact, studies that have examined both the impact of crude oil prices and bio-fuels demand on agricultural prices conclude that oil prices are the more influential factor.

“While it would be naive to claim that grain demand for ethanol production has no effect on commodity prices, it is equally inaccurate to speculate that future ethanol policies will have a detrimental effect on the livestock and meat industries,” they add.

As well, once the grain is processed for ethanol, the left over protein, fiber and oils are sold back into the feed supply as high-value, low-cost feed known as dried distillers grains.

Richard Phillips of Grain Growers of Canada adds that the world will increasingly need renewable fuels. “Going forward, we could see better varieties of corn developed specific for fuel, and the next generation of feedstock might include different crops like miscanthus or algae. It would be a step backwards to stop now given where we need to be in the future.”

The Centre report, which was commissioned by the Canadian Meat Council, the Canadian Cattlemen’s Association and the Canadian Pork Council, says higher feed prices reduce livestock production. That will mean fewer jobs in processing plants as well as less income for farms. As well, farmers will export feeder animals to countries where cheap feed is available rather than finish them in Canada.

“It is acknowledged that over the past five years, the cattle and hog industries in Canada have undergone a great deal of financial stress,” the report says. “The Canadian dollar appreciation, the increase in global grain prices, animal health challenges and trade disputes have all negatively impacted the industry. As a result of these challenges, there is a tendency to overlook the impact of Canadian ethanol policies.”

Canadian ethanol production increases the price of feed grains in eastern and western Canada by about $15-20 a tonne and $5-10 a tonne respectively and that reduces farm incomes by $130 million a year. The losses will climb if higher levels of ethanol in gasoline are required.

The Canadian Meat Council says, “Using precious agriculture land and input resources like fertilizer, pest controls and water to grow an input to fuel our vehicles rather than feed livestock and people is not a good strategy for the future, especially now that the world’s population has surpassed 7 billion.”

Overall, agriculture in Canada is in better shape than it has been for years. The agri-food generates about 9% of the national GDP. As one of the leading economic sectors, perhaps the agri-food industry should spend more time talking about itself about the future and less about old quarrels.

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