Canadian farm publications — or Canadian farmers for that matter — don’t often heap well wishes on U.S. farm groups.
While there are often shared interests there are also, all too often, bones of contention. From country-of-origin labelling (COOL) to dairy quotas, Canadian agriculture frequently finds itself under withering not-so-friendly fire from our southern neighbours.
Sometimes, we’re also collateral damage to that nation’s legendary farm lobby and its ability to prod the U.S. federal government into positions amenable to the sector’s interests. During the last farm crisis, for example, Canadian, Australian and Latin American grain growers could only look on in frustration as the EU and U.S. duked it out in a subsidy war few others could afford.
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That’s why it feels strange to be saying this: we’d all better hope the U.S. farm lobby has one more win in it. Because if the old heavyweight can’t go one more round, grain growers everywhere could find themselves paying the price for a huge policy shift.
A bipartisan group of U.S. senators recently introduced a bill that could affect every grain grower in the world, as they call for an end to a U.S. national mandate that requires oil refiners to blend corn-based ethanol into their gasoline mixes.
It’s been part of the U.S. Renewable Fuel Standard (RFS), which has, in one form or another, been U.S. policy since 2005 — a date that, probably not coincidentally, coincides with grains finally shaking off the price doldrums that had dogged them since the 1980s.
Under the RFS, U.S. refiners are required to blend about 15 billion gallons of ethanol into their fuels every year. To put that into perspective, that’s equivalent to 40 per cent of the U.S. annual corn crop, outstripping even its use an animal feed, which weighs in at 36 per cent.
That added demand had the predictable effect of increasing corn prices, and dragging all the other grains up alongside.
Probably not surprisingly, the senators putting the bill forward largely seem to be representing states with oil refineries in them. They say the mandates are costly and put jobs at risk.
They’ve been joined by others, who say corn ethanol is no longer the top option since there are other biofuels, with lower greenhouse gas footprints, available.
“The federal corn ethanol mandate no longer makes sense when better, lower-carbon alternatives exist,” the Reuters news service reported California Senator Dianne Feinstein saying. “It’s time to end the mandate and instead support more advanced biofuels and biodiesel that won’t contribute to climate change or drive up the cost of food.”
This is probably where the ethanol mandate is at its most vulnerable. Few would vote against the concept of emissions reduction and energy independence, but if they can successfully convince enough other legislators there are better options, the move could gain traction. And that could be disastrous for grain prices.
This is where the power of the farm groups comes in. They’re expected to lobby strenuously against the legislation. It’s not hard to see why. There’s no sign of another use that could absorb nearly half of the U.S. corn crop on the horizon.
Removing that demand would no doubt cause grain prices to fall nearly as quickly as they rose. It’s doubtful they’d fall back to the levels seen in pre-ethanol days, but that wouldn’t have to happen for the pain to linger a long time.
The farm crisis of the 1980s and ’90s wasn’t because prices fell to pre-Great Grain Robbery levels. It was because they dropped enough that they fell below the new cost structure that had risen during the good times, as producers rushed to make investments and meet this new demand.
That’s certainly happened again, as can be seen in farm debt levels around the world. In Canada, for example, farmers hold $121.9 billion in debt, according to the most recent figures from Statistics Canada. South of the border, the United States Department of Agriculture forecast early this year expected farm debt to increase to US$441.7 billion.
It was close to 17 years ago the first ethanol mandate appeared, and that’s been plenty of time to get used to it, and then come to expect it.
If mandates were to disappear at the same time, and inflation begins to drag interest rates up, the recipe begins to look worryingly similar to the same one that led to the last major crisis in the sector.
As Mark Twain once famously observed, “History never repeats itself, but it does often rhyme.”
So farmers everywhere had better hope that the fearsome lobbying reputation of grower groups like the American Farm Bureau Federation, the National Corn Growers Association and the umbrella organization, Advanced Biofuels Business Council, prove up to the job.
If they aren’t, it could be a long and painful lesson in the economic laws of supply and demand on a global scale.
