THE BOOMING biofuel sector promises to radically alter the agricultural status quo.
To ensure the changes are for the good, governments must carefully design the biofuel policy framework.
Some agricultural economists and livestock producers already warn that politicians’ desire to support biofuel with tax breaks and mandated renewable fuel requirements could backfire, with the benefits of ethanol and biodiesel more than offset by a decline in the livestock and meat sector.
The United States, with its generous subsidies, is ahead of Canada in developing its biofuel sector so the implications of that growth are appearing there first.
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This year, about 100 ethanol plants in the U.S., almost half of them owned by farmers, are expected to use 20 percent of U.S. corn production. Corn producers relish the expectation that ethanol demand will help push corn prices toward $4 US per bushel and the farmer-owners of the plants like their dividend cheques.
But livestock producers worry about the steady rise in feed costs. They can’t pass the extra costs on and with static meat prices and higher costs, the only place to cut is the producer’s profit.
That will continue until financial losses cause the herd size to shrink enough to reduce meat supply, driving up its price.
Then the question arises whether export markets will accept the higher price or seek cheaper product elsewhere.
Even without a large ethanol industry, Canada’s livestock producers face higher feed costs as barley and feed wheat prices are influenced by corn. The situation would be compounded if biofuel policy here becomes a facsimile of the American model.
But if agricultural policy makers, researchers and producers are mindful of the challenges as well as benefits of biofuel, the drawbacks can be mitigated.
One priority will be to develop feed rations that make effective use of feed byproducts – distiller’s grain and oilseed meal – produced by the biofuel industry. Rising feed grain costs might be offset by increased use of these inexpensive feeds Also, if breeders can develop super high yield grain varieties for the biofuel industry, expected feed shortages can be preempted.
A third goal will be to design the policy landscape to encourage biofuel development without overstimulating it.
Government policy must also orient support to farmer-owned biofuel projects to help ensure that farmers enjoy real long-term benefits from the new industry. This is particularly true in Canada where so far most biofuel plants are being built by oil companies or non-agricultural investors.
With the right biofuel policies, governments can free farmers from subsidization, spread the benefits across agriculture and help the environment. With the wrong policies, they can pour tax money into non-agricultural investor’s pockets and ultimately hurt agriculture.
Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Ken Zacharias collaborate in the writing of Western Producer editorials.
