The network for agriculture in Ontario, Canada
Over 40% of Canada's Ethanol comes from the USA. Any comments? Why?
| OVER 40% OF CANADA'S ETHANOL COMES FROM THE US | 06/03/13 |
| From Bioproducts Update Canada's ethanol mandate is being met in a large part by a torrent of U.S. corn ethanol flooding across the border.? The five percent federal mandate requires 2.2 billion litres of ethanol to be blended into the fuel supply annually.? Canadian fuel blenders imported 893 million litres of U.S. ethanol in 2012, according to the U.S. Renewable Fuels Association. That's enough foreign fuel to meet 41 percent of the national mandate.? It is not what the federal government had in mind Sept. 1, 2010, when it announced that regulations requiring a five percent ethanol blend in Canada's fuel supply would come into effect Dec. 15, 2010.? In a backgrounder document accompanying the announcement, the government said the mandate would provide the industry with the regulatory certainty it needed to build production plants sufficient to supply the Canadian market and provide a new market for grain.? "Support for renewable fuels is support for farmers, rural communities and our economy," agriculture minister Gerry Ritz said in a news release.? Almost three years later, it is apparent that much of the opportunity is occurring south of the border. ? Canada's total ethanol capacity is 1.6 billion litres, according to the Canadian Renewable Fuels Association. ? Natural Resources Canada has a different number. It says production capacity has grown to 1.92 billion litres following the announcement of the Renewable Fuels Strategy, up from .2 billion litres before the announcement.? It estimates there were 1.725 billion litres of actual production last year.? Even using Natural Resources Canada's numbers, production would have fallen short of the mandate by 475 million litres, assuming every drop was used to meet Canada's mandate.? That is why Canada has become the top destination for U.S. ethanol exports, accounting for 32 percent of sales last year.? "It has been the number one export market for the U.S. for the last several years," said Geoff Cooper, vice-president of research and analysis with the U.S. Renewable Fuel Association.? "We do expect Canada to remain as a top export market for the U.S."? So what went wrong? Why is such a big chunk of Canada's mandate being met by U.S. corn ethanol rather than wheat ethanol from Western Canada?? "That's a difficult question to answer," said Calvin Eyben, general manager of Terra Grain Fuels, the largest ethanol plant in Western Canada.? If he had to boil it down to one reason, it would be that the U.S. has 55.7 billion litres of capacity to meet a 2013 federal mandate of 50.7 billion litres.? "That's the biggest reason why everybody is struggling, is because there was too much investment on the U.S. side and nobody really predicted that in Canada," he said.? Dale Williams, manager of sales and logistics with Terra, said it also has a lot to do with the feedstock. Corn is cheaper than wheat and produces more ethanol. ? The upshot is that U.S. corn ethanol can be competitive with Saskatchewan wheat ethanol in Alberta and British Columbia, even with the substantial freight disadvantage.? Al Mussell, senior research associate with the George Morris Centre, said the federal government might have misread the appetite for ethanol.? "There must have been some expectation that provinces would come pretty firmly on side with this in order to make it work," he said.? That hasn't been the case. For instance, only one small ethanol plant operates in Alberta.? "There may be some provinces that have limited their involvement in this out of concern for livestock enterprises that they have in the province," said Mussell.? He also questioned the push by politicians to create an ethanol policy that would encourage farmer investment in small scale plants that would be hard-pressed to compete against large multinationals.? Canadian companies are also forced to pay higher wages to compete with companies in the booming oil and gas sectors.? And the competitive landscape is getting worse in Western Canada. ? On April 1, Saskatchewan reduced its ethanol tax credit to 10 cents per litre from 15 cents, bringing the province into line with the recently reduced subsidies in neighbouring Alberta and Manitoba.? Manitoba is phasing out its subsidy program altogether by 2014-15 and Alberta a year later. It sounds as if Saskatchewan will again be following suit.? "We have been led to believe that Saskatchewan will be phasing it out over the next year or two," said Eyben.? He worries that eliminating the subsidy will open the door to U.S. ethanol imports.? "Right now, that subsidy makes it uneconomical for any Saskatchewan company to bring in U.S. ethanol," said Eyben.? Saskatchewan is one of the few provinces that exports ethanol. Its five plants produce more than is required by the province's 7.5 percent mandate. Most of the excess goes to Alberta and B.C., where Saskatchewan's plants face stiff competition from U.S. ethanol. It will be fiercer once the subsidies disappear.? "We're going to have to be competitive with the U.S. plants, and if we're not competitive then this industry will downsize," said Eyben.? That is going to be a difficult proposition, given all the competitive advantages for U.S. ethanol. ? "We're going to have to get creative," said Eyben.? It might mean finding alternative revenue sources, such as selling the carbon dioxide generated in the fermentation process to a local greenhouse.? Or it may mean taking a closer look at the bottom line.? "We would have to look at buying (farmers') grains cheaper and/or selling our ethanol at higher prices in order to maintain the facility in good standing order," said Eyben.? Mussell said the ethanol business was a licence to print money in 2006 and 2007, but lately it has been hard to generate a profit because of escalating feed grain costs.? "Through last year, it was just nothing but red (ink)," he said.? "I think it has recovered a little bit but I don't think to the level that would cause anybody to want to reinvest in one of these things."? Feed wheat has been in particularly short supply in Saskatchewan in 2012-13 because of good harvest conditions last fall that resulted in a good quality crop and strong competition from lucrative export markets. ? Faced with paying $7.40 per bushel for wheat, Terra has resorted to buying imported corn from the U.S. and Manitoba. Corn now comprises 15 to 20 percent of the feedstock used by the wheat ethanol plant. |
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