Higher ethanol blends would hit livestock sector: study

Policies designed to cut Canada’s emissions from fossil fuels have instead made the ethanol industry a "subsidized competitor" against the livestock sector, according to a new study from a well-known ag think tank.

The George Morris Centre at Guelph, Ont. on Tuesday released a report by senior market analyst Kevin Grier, senior research associate Al Mussell and analyst Irena Rajcan, urging the federal and provincial governments to reconsider their programs providing capital grants for additional ethanol plants and capacity.

The policies and programs sustaining Canada’s ethanol industry must be "curtailed or eliminated," the authors wrote, adding ethanol policy should not expand to require a 10 per cent national blend.

"Governments must recognize the significance of the Canadian livestock and meat industry, and that it is vulnerable to expansions in ethanol policy," the study authors wrote.

"Government has demonstrated that in a short time, it can create a large ethanol industry. The same cannot be said for the livestock and meat industry."

Specifically, the study finds Canadian ethanol production increases the price of feed grains in Eastern Canada by about $15 to $20 per tonne, and in the West by $5 to $10 per tonne.

That translates into tighter livestock feeding margins and/or increased losses for Canadian producers, totalling about $130 million per year, the study said.

"We aren’t against high grain prices, but we want to compete on a level playing field," said Travis Toews, president of the Canadian Cattlemen’s Association, which along with the Canadian Pork Council and Canadian Meat Council co-funded the Morris Centre study.

The cattle industry, Toews said, "fully appreciates how important a vibrant Canadian grain industry is to our sustainability" but the association also calls for the removal of ethanol subsidies and tariffs and the ethanol blending mandate.

"This would let the market decide the best usage of feed grain in Canada," he said in a separate release.

"Need to rationalize"

Ethanol production in this country, the study authors said, has resulted in lower feeder livestock prices for Canadian producers, meaning more feeder animals that could have been fed by Canadian producers were instead exported.

The livestock sector in Canada’s East is particularly vulnerable, the study said, predicting that the expansion of mandatory ethanol content in gasoline to a 10 per cent blend would lead to a "serious reduction" in feed availability there, and a "dramatic reduction" in cattle and hog feeding as a result.

The ethanol industry is estimated to use about two million tonnes of grain corn in Ontario, which alone could impact local supply and demand enough to swing the price spread by about $17 per tonne, from a negative $10 to positive $7.

Even if record corn production and imports are assumed, Eastern Canada’s cattle and hog sector "would need to rationalize by up to 40 per cent to conform to available feed supplies" if ethanol were allowed a 10 per cent mandate in fuel blends, the study said.

Given that Prairie wheat and barley exports are about two times greater than feed use for those two crops in the West, the supply situation "does not make (the West’s) cattle and hog production vulnerable under a 10 per cent mandate." However, the study said, the West’s livestock industry would "continue to suffer under an increased price impact."

"Limited inclusion"

The study authors blame such developments on the strengthening in the grain basis due to Canadian ethanol policy, rather than the world price of grain.

It’s not that the use of mandates and subsidies to support ethanol development broadly boosts grain prices, the study said, but that it "increases relative grain prices in the local Canadian markets." (Emphasis theirs.)

The study also disputes any claim that Canadian ethanol poses no threat to the livestock sector due to relatively lower grain prices in Ontario and Western Canada compared to those in the U.S. during 2010 and 2011.

Such a claim, the authors wrote, would be "simply based on a fortuitous increase in production relative to demand in Canada compared to the U.S." and besides, "even in these circumstances, the data and economic theory still demonstrate a negative livestock impact."

The study acknowledges production of distillers’ grains as a feed byproduct is "of material benefit in livestock feeding" and that the byproduct’s price has dropped as ethanol production rises — but the study also notes a "limited inclusion rate" for the byproduct.

For example, the study said, using 20 per cent distillers’ grains as a dietary energy source in livestock feed, distillers’ grains "would need to decrease in price at five times the rate at which the local feed grain price strengthens due to ethanol, in order for livestock to be unaffected" in terms of local cost-competitiveness.

The Canadian Renewable Fuels Association, the voice for the biofuel sector, had no official comment Tuesday on the study’s findings.

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