Winnipeg Free Press, Canada
10-23-07
Ethanol industry fuels debate
Critics question benefits, fear rising food prices
By Larry Kusch
THE booming North American ethanol industry has brought good times to grain
growers and created jobs in the Prairie heartland, but it's also being blamed for
driving up food prices, squeezing livestock producers' profits and even limiting
efforts to feed the world's hungry.
A report published Monday by CIBC World Markets said while corn-based
ethanol production has done little to satisfy America's thirst for energy, it's helped
fuel the biggest rise in U.S. food prices in more than 15 years.
"By the end of next year, we predict that food inflation will be running well over
five per cent and as (U.S.) ethanol production rises to nine billion gallons in 2009,
food inflation will approach seven per cent, its highest level in more than 25
years."
Canadians can expect their food prices to be squeezed as well since the United
States "is a major, major corn exporter to the rest of the world," CIBC economist
Jeff Rubin told The Canadian Press.
Chad Hart, an economist at Iowa State University, said meat prices have
been particularly affected. He expects meat and egg prices to rise five to nine per
cent due to increased corn prices driven up by the huge demands of the
American ethanol industry.
Some time in January -- a precise date has not been set yet -- the Manitoba
government will jump onto the global ethanol bandwagon, requiring that 85 per
cent of all gasoline sold in the province contain a 10 per cent ethanol blend.
AN ETHANOL PRIMER
Ethanol is an alcohol-based product made from a variety of sources, ranging
from corn to sugar cane. In Manitoba, it's made primarily from wheat. The starch
in the grain is converted to ethanol in a fermentation and distillation process
similar to making beer.
wEthanol is not to be confused with biodiesel, a diesel fuel replacement that, in
Canada, is made mainly from canola oil.
wBeginning in January, the province will require that 85 per cent of gasoline sold
in Manitoba contain a 10 per cent ethanol blend.
wThe government says the requirement is part of a broad program to reduce
Manitobans' reliance on fossil fuels and promote value-added processing in rural
Manitoba. Some $1.4 billion worth of gasoline and diesel is imported into the
province each year.
wThe mandated use of ethanol-blended gasoline comes as Husky Energy ramps
up production at its new $145-million ethanol plant in Minnedosa.
wManitoba will pay ethanol producers about $26 million in subsidies in each of
the next two years to ensure that pump prices aren't affected by the higher-cost
fuel. The subsidy will drop to about $19.5 million in the three following years and
then to $13 million for three years after that before coming to an end.
wGasoline containing 10 per cent ethanol will not damage vehicle motors, the
province says. If you fill up at Mohawk, you're already buying the stuff.
It's doing so at a time when the ethanol industry is receiving unprecedented
scrutiny -- and a fair bit of criticism.
In a scathing report last month, the Organization for Economic Co-operation and
Development's round table on sustainable development said the rush by nations
around the world to grow crops for fuel "threatens to cause food shortages and
damage to biodiversity" while displacing only a small amount of fossil fuel in most
countries.
The report, entitled Biofuels: Is the cure worse than the disease?, also questions
whether there are any environmental benefits of biofuels, such as ethanol, once
"soil acidification, fertilizer use, biodiversity loss and toxicity of agricultural
pesticides" were taken into account.
In Canada, some observers have been just as blunt in their denunciations of the
industry.
"Ethanol itself is not a good idea," said Kevin Grier, senior market analyst with
the George Morris Centre in Guelph, Ont.
"If it was a good idea and it caused difficulties for other sectors, then so be it. Let
the chips fall where they may. But the starting point is that it is an inefficient fuel
produced in an inefficient manner, and it would never, ever, ever be produced if it
wasn't for heavy subsidies," Grier said in an interview.
The CIBC said in its report, authored by Rubin and Benjamin Tal, that cornbased ethanol in the United States "provides only a 25 per cent net energy
benefit" compared with the energy required in its production. By comparison,
Brazilian ethanol made from sugar cane provides a 90 per cent increase in
energy, they said.
Manitoba beef and hog producers say rising feed grain prices -- fuelled largely by
subsidized U.S. ethanol production -- are hurting their bottom line.
And they're critical that the province is going to subsidize production here.
Manitoba will pay ethanol producers $26 million in the next year to ensure
motorists don't pay extra at the pump because of the mandated use of highercost ethanol. That's a drop in the bucket compared with the estimated $8 billion a
year in American and state government supports south of the border.
"I guess our concern is that my tax dollars are going towards the ethanol industry
so (it) can cut my throat on feeding cattle. It's my money that's doing it," said
Martin Unrau, a McGregor cattle rancher and president of the Manitoba Cattle
Producers Association, whose export-dependent industry is already reeling from
a soaring loonie and the lasting effects of the BSE crisis.
Andrew Dickson, general manager of the Manitoba Pork Council, a hog producer
lobby group, said his industry is also concerned.
"You might be propping up the grain guy, but at the same time you're pushing
down the livestock guy," Dickson said. "So what have you achieved from a public
good point of view?"
A spokesman for the Canadian biofuels industry said Canadian livestock
producers are hurting economically because of a host of reasons, not just
ethanol.
"For the first time in a long time, 100,000 grain farmers in Canada are getting a
fair return," said Robin Speer of the Canadian Renewable Fuels Association.
Speer said farm worries over ethanol production may be overblown as livestock
and ethanol producers are "cohabitating extremely well in the (U.S.) Midwest."
Shaun Loney, director of energy policy with the Manitoba government, defended
his government's support for the ethanol industry, saying emerging industries
often need incentives to get off the ground.
He said support for the biofuels industry is part of a three-pronged plan -- along
with energy conservation and promoting more energy-efficient vehicles -- to
reduce Manitobans' dependence on fossil fuels. The ethanol industry is also
creating markets for grain producers and jobs for rural Manitoba, he said.
Loney said that unlike in other jurisdictions, Manitoba's subsidies to ethanol
producers will be phased out after eight years. He also noted the Canadian oil
and gas industry has received billions in government handouts in recent
decades.
He also pointed out that as a result of new ethanol plants sprouting up across the
Prairies, including a new $145 million facility in Minnedosa, livestock producers
will gain access to a valuable high-protein byproduct of ethanol production called
distillers dried grains.
"We expect it to drive down the prices of (feed) protein in Manitoba, which will
benefit cattle producers," Loney said.
Meanwhile, the Canadian Foodgrains Bank, the Winnipeg-based agency that
ships food to people in need around the world, is watching rising grain prices with
concern.
Jim Cornelius, the organization's executive director, said while he's pleased
some of his group's biggest donors -- Prairie farmers -- are finally getting a good
price for their grain, he's worried "rapidly rising prices for staple grains are going
to increase (global) hunger."
"Prices are rising fairly fast and we're not able to purchase as much with our
budget," said Cornelius.
larry.kusch@freepress.mb.ca
THE ETHANOL DEBATE
Booming grain prices, fuelled largely by U.S. ethanol production, mean Canadian
grain farmers are making money again and should be less dependent on
government aid programs, federal officials say. The Chicago corn futures price
closed at $3.64 per bushel Monday compared with $1.99 two years ago. Rising
corn prices and drought in key wheat-producing areas have caused world wheat
prices to more than double in the past two years.
wHog and beef producers are crying foul about government subsidies for ethanol
production, as competition for grain from ethanol makers drives up livestock feed
costs. But ethanol proponents say the damage to livestock producers is partially
offset by the availability of distillers dried grains, a high-protein byproduct of
ethanol production.
wMeat prices have risen five to nine per cent in the United States due to rising
corn prices fuelled by ethanol production, an Iowa economist says. Don't blame
ethanol for any increase in cornflakes prices, though, as the cost of the corn
represents only five per cent of the retail price of the flakes.
wProducing ethanol saves little energy and the product wouldn't be produced
without heavy government subsidies and mandated government usage, critics
say. But the province says wheat-based Manitoba ethanol will produce 150 units
of energy for every 100 units consumed. The Auditor General of Canada in 2000
said the oil and gas industry received $40 billion in incentives in the previous 30
years.
wSupplementing ethanol for some of the gasoline in your gas tank makes for
cleaner air since ethanol pollutes less, according to the Manitoba Lung
Association. In terms of greenhouse gases, Manitoba's law mandating ethanol
use will have the effect of taking 27,000 cars off the road, the province says.
wHigher grain prices, fuelled largely by ethanol demand, mean governments will
have to boost food-aid budgets simply to maintain food-aid targets. Canada has
already failed to live up to its commitment to provide a minimum of 420,000
tonnes of food aid in three of the last six years, according to the Canadian
Foodgrains Bank.
wU.S. ethanol production totalled nearly five billion gallons in 2006, representing
3.5 per cent of motor vehicle gasoline supplies, according to the U.S. Department
of Agriculture. Ethanol production in the U.S. is forecast to exceed 10 billion
gallons by 2009, using 30 per cent of the corn crop. The USDA projects that even
by 2017, ethanol production will represent less that eight per cent of American
gasoline usage.
wBiofuels subsidies continue to grow rapidly and are expected to reach $8.3
billion to $11 billion a year in the U.S., according to the OECD. At the same time,
the U.S. Department of Agriculture expects to spend less on farm subsidies in
the coming decade, with American farmers receiving only four per cent of their
gross cash income from the government instead of eight per cent in 2005. The
Canadian government has not released its own forecasts.