Ethanol plants won’t help the rural economy and won’t help most farmers, say two prairie agricultural economists.
In fact, if governments subsidize ethanol production, they may cripple the growth and profitability of livestock producers – a major and growing part of the prairie farm economy.
During a panel discussion at a Canadian Wheat Board market outlook conference, University of Manitoba agricultural economist Daryl Kraft said encouraging ethanol may be equivalent to discouraging livestock.
“If we’re (forced to import feed grains) that is going to slow the expansion and maybe even stop the expansion of the livestock industry, which has provided a good deal of rural development to this province over the last 10 years, far more than the ethanol plants would provide.”
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University of Saskatchewan agricultural economist Richard Gray, who listened to the panel discussion, agreed with Kraft.
“If we have to more often import feed grains, it will really slow up the growth of the livestock industry, which I think is an important source of jobs,” said Gray.
“It does so at the cost of having to provide a lot of subsidies to the ethanol industry. I don’t think it makes a lot of sense.”
Kraft and Gray base their analysis on the likelihood of Western Canada becoming a net feed grain importer more often than it is now if an ethanol industry consumes large amounts of grain.
Now, livestock feeders can buy locally grown feed grain cheaply because it is priced to compete with the cost of exporting the grain with handling and transportation charges. But if ethanol production consumes large amounts of feed, more feed grain shortages like the one this year will occur.
That will raise prairie feed grain prices, as has happened for the past two years on the Prairies. That will help grain growers, but will hurt livestock producers, the economists say.
Nor will it provide a stable basis for an ethanol industry. U.S. ethanol producers are able to use cheap corn. If prairie plants have to pay to import corn, and pay high prices for local barley, they will not be able to compete with American plants.
Kraft said Manitoba is not a competitive place to produce ethanol. In most years little feed wheat is produced in the province. A large ethanol industry would require 27 percent of the total provincial wheat crop to meet the needs of livestock feeders and ethanol producers. In many years that would require imported feed grains.
New high-yielding and fusarium-resistant feed wheat varieties could increase production, but “without that, feed grains are going to be more costly more often as we rely on imports, either from Minnesota or Saskatchewan, to buffer our shortages in supply.”
Agriculture Canada economist Dave Tupper gave cautious approval to ethanol’s potential to bring more benefit than harm to the rural economy, but said the industry could not thrive without huge government subsidies, to which there is no government committment.
Bliss Baker, president of the Canadian Renewable Fuels Association, said all energy sources are subsidized and ethanol needs its fair share.
“I don’t know of an energy source in the world that isn’t subsidized in one form or another,” said Baker.
He said huge ethanol demand in the U.S. means Canada should get in on the growing market.
“We need to get on with it now. Canada is falling behind.”
He said new technologies are making ethanol cheaper to produce, so industry investors should be encouraged.
But Gray, in an interview, saw it differently.
“It doesn’t suggest we should invest just because the technology is improving,” said Gray.
“That suggests we should wait to invest so that we can invest in the right types of plants, so that when it does get cheap enough or the markets do emerge, we can supply them profitably.”
