Ontario Agriculture

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Daynard: Critique of recent attack by George Morris Centre on fuel ethanol

by Terry Daynard   www.tdaynard.com

Differences of opinion are always valuable, especially when supported by thorough and objective analysis. This is what one would expect of the George Morris Centre (GMC) which bills itself as Canada’s independent agri-food think tank. The centre has released a series of reports on fuel ethanol in recent years, all highly negative, and all much weightier in opinion than analysis. Unfortunately this also applies for the one released on January 31.

The report can be found at www.georgemorris.org. I have gone through the report in some detail and offer the following comments:

My biggest criticism is that the report consistently ignores the significance of DDGS (distillers dried grains and solubles) produced during ethanol manufacture in calculations of available feed supply. Traditionally, DDGS have been considered to represent one-third of the weight of the input grain, though a recent Iowa State University report says 30%, perhaps reflecting the higher ethanol efficiency of newer plants. I’ll use 30% in numbers below. DDGS are not exactly the same as grain. They are higher in both protein and fibre, making them more desirable for some feeding uses and less so for others. In general terms, however, they are about equivalent to grain in assessing total feed supply on a provincial or national basis.

If the GMC analysts had included increased DDGS supply with expanding ethanol production, their numbers would be much different. For example, they show a graph purporting to show that US corn availability for all uses except ethanol has declined since 2000. But inclusion of the DDGS shows that there has been no reduction, despite six times more ethanol production by 2011. Total US corn-plus-DDGS supply has gone up accordingly. Similarly, when they attempt to show in another graph that the portion of US corn going to ethanol now matches that going for feed, they forget the 30%.

There are even more problems with the GMC analysis of Canadian corn supply and usage. While the writers claim that ethanol has hurt corn supply for feeding, their own graphs show the reverse. Their graphs show Canadian corn production has increased by at least 2.5 million tonnes from 2000 to 2011 with usage for ethanol up by “only” about 2 million tonnes. (The same pattern exists whether using trend-lines or only first and last year statistics.) This does not even include the DDGS supply. Domestic corn-based feed supply has grown, not shrunk, despite ethanol.

Global corn prices have increased since 2007 and ethanol is one factor. But the GMC report suggesting that ethanol is the dominant factor ignores the analyses of other analysts showing that energy costs have been a greater driver, as have international distortions in global grain trade. And remember that real corn prices declined for more than 25 years before 2007.

The GMC report blames tariffs on imported ethanol for unfairly protecting Canadian ethanol producers. But the tariff on US ethanol – the world’s largest export supplier, even to Brazil – is zero. How can it be lower?

The GMC report details and attacks government support for ethanol producers, labelling this as unfair competition for livestock producers, and appears to imply, by comparison, that the Canadian livestock and meat industries are essentially free of equivalent government support. If GMC writers had wanted to be objective, they would have compared the size of both.

Though the report largely ignores other related studies, it does reference a report released last year by the Grain Farmers of Ontario (GFO) (and co-authored by me, see www.gfo.ca/FoodvsFuel.aspx) to support its claim that local corn prices have increased by $15-20/tonne in Ontario because of ethanol. What the GFO study really showed, however, was that Ontario corn prices are the same relative to the adjacent US as they were before rapid ethanol expansion began, but would be $20/tonne lower without ethanol. This is because of expanded corn production in Ontario and Quebec. GMC authors appear to want grain farmers to take that $20 hit.

For Western Canada, the GMC report claims the 3.5% of wheat now used for ethanol is calamitous for livestock producers. When you consider that the 3.5% reduces to about 2.5% with added DDGS supply included, the GMC claim seems extreme.

The report does show that the Canadian livestock industry is doing quite well now thanks to better prices, and for that we are all very grateful. But to suggest that livestock producers must prosper at the expense of grain farmers is unhelpful.

And as for the so-called effect of these higher prices on consumers, a calculation detailed in the afore-mentioned GFO study shows that average consumers now earn enough money on average to pay the farmers’ share of annual food purchases by January 9. Ethanol production may have delayed that by about 4 hours according to the GFO study, while also reducing annual consumer gasoline purchase costs by at least $100.

The GMC study argues against increasing the mandatory ethanol content up to 10% of gasoline supply, and on that I agree with them, especially ethanol made from Canadian corn, at least for now. The current production and usage of corn ethanol in Canada represents a good balance between the environmental and rural economic benefits provided by ethanol inclusion in gasoline with minor effects on other end users. (By contrast, there should be more scope for ethanol production from wheat, and cellulosic ethanol will eventually become more significant.) But the GMC argument would have been decidedly more credible if presented in a more objective manner, and perhaps with more background research.

A common complaint about the George Morris Centre has been that some of its analyses often seem driven more by ideology than impartial analysis. That pattern continues.

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Comment by John Schwartzentruber on February 16, 2012 at 1:29pm

"But to suggest that livestock producers must prosper at the expense of grain farmers is unhelpful."

Terry, would you consider it "helpful" to see the grain industry prosper at the expense of the livestock industry?

I'm sure that you need no reminder of where the great majority of Ontario grains are marketed. An accurate illustration would be asking your wife to continue to clean the house, cook the meals and do the laundry while you cavort on the dance floor (or elsewhere) with the gorgeous blonde who just showed up at the door.

As the livestock industry in Ontario continues to die off, the grains industry becomes more and more reliant on other markets AND we need to import more meats from other areas. Does this make sense in any way? (Well I suppose it does for the grain industry, as more grains need to be diverted into biofuels to fuel the greater movement of goods - so "green" . . . )

The only way that biofuels production is fair is if competing industries receive equal subsidies. And we know that is not going to happen, nor do I want it to.

That the battered livestock industry has had to compete with heavily subsidized biofuels plants for their resources is a travesty at best. There is a strong possibility that all Ontarians will pay dearly for this government-sponsored fiasco in the long run. What a surprise.

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