Ethanol costs hit Canadian meat industries

The report finds that the rapid development of ethanol production capacity in
Ontario could lead to a permanent import pricing basis for corn, which would
undermine the basis for cost-competitive pork and beef industries, and induce
dramatic downsizing.

“As it stands, Ontario marketings of hogs and cattle
have already outstripped the capacity of domestic corn to feed them, so
downsizing is warranted,” says Al Mussell, Senior Research Associate at the
George Morris Centre and lead author of the report.

“But the appetite for
corn from ethanol plants coming on line in the near future is immense, and
backed by subsidy.

“The export-based red meat industry in Ontario will be
unable to compete for corn with ethanol, and the firm import pricing basis for
corn that results will decimate the red meat industries”, he
said.

Tracing the links
The report traces the link between corn
production, consumption in feed and industrial uses, and ethanol production and
distiller’s dried grains (DDG) in its analysis of forthcoming adjustments as
ethanol production increases.

“Even when we force the maximum feasible
inclusion rates of DDG into livestock rations, the implied shrink in hog and
cattle marketings that would return Ontario to competitive corn basis levels is
simply dramatic”, says Graeme Hedley, a George Morris Centre
Associate.

The report concludes that, even at CAN$148-156 million per
year, these results significantly understate the entirety of adjustment
costs.

According to Mussell, “our results only scratch the surface, as we
have not included losses or asset devaluation in feed, veterinary, or animal
breeding. Clearly this also has implications for ethanol production in Western
Canada.

“The bottom line is that this will result in a very hard landing
for red meat segments in Eastern and Western Canada, based on our current
course.”

The complete GMC report entitled “Crowding Out: The Real Ethanol
Issue in Canada ” is available on the George Morris Centre

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