As I write this column, we have just completed our annual general meeting (AGM) in Ottawa. The Canadian Cattlemen’s Association (CCA) annual meeting provides an excellent opportunity to gain a perspective of industry issues from across the country and ensure we have the appropriate policies and effective strategies in place to deal with those issues and initiatives.
One issue that received a fair bit of attention was the effect and potential effect of North American biofuel policies on our industry. With high North American feed prices and projected tight carryover, there is considerable concern that the cattle industry is at real risk of a feed grains shortage, particularly if a major crop production limiting event is experienced in 2011. As well, there is concern that significant growth in Canada’s grains-based biofuels industry has the potential to undermine the long-term competitiveness of the cattle feeding sector.
It can be successfully argued that U.S. biofuel policies as well as increasing demand for grains around the world have been the real drivers in rising feed costs. It can also be assumed that growth in Canada’s ethanol industry would not have a major effect on Canadian feed grain prices as our prices are set on the world market. However, while significant growth in Canada’s biofuels industry may not result in large increases in feed grain prices, the price increases could be significant to our industry.
The cattle-feeding sector in Canada has been relatively competitive with the U.S. even though our fed cattle prices tend to trade at a negative basis or discount relative to U.S. fed cattle. This competitiveness has occurred due to the fact that feed grains have also typically traded at a slight discount to U.S. feed grain prices. The discount for fed cattle and feed grain exists because our production of both commodities exceeds our demand. If the demand for feed grains increases in Canada to the point that we are no longer exporters, price spreads relative to the price of U.S. feed grains will disappear. This slight increase in the price of Canadian feed costs relative to U.S. feed costs will leave our cattle-feeding industry at a distinct disadvantage to the U.S. industry. As our cattle-feeding industry shrinks, so will our processing infrastructure, and industry as a whole.
The issue is not that a biofuels industry exists in Canada, or even that it may expand. In fact, distillers grains, a byproduct of grain-based ethanol production, is a good ruminant feed source and there can be local synergies experienced where biofuels production and feedlot operations are combined. The concern is that governments, both federal and provincial, are attempting to encourage artificial growth of the biofuels industry with blending credits, mandates for use, and duties on imported ethanol. While some feeding operations may benefit from a nearby biofuels processor, the competitiveness of the feeding industry as a whole is reduced. The growth of the biofuels industry in Canada has the potential to grow one value-added sector at the expense of another. To the extent that growth in the biofuels industry is dependent on subsidies and mandates, the long-term viability of the replacement industry is questionable. Very few industries that have required significant government incentives to establish have enjoyed long-term success.
In 2006, the CCA commissioned a working group to study the biofuels issue and develop policy recommendations. The recommendations formed the basis for the CCA’s biofuels policies, which are currently in effect. They are as follows:
That the CCA endorse a clearly defined and expeditious transition to a market-based approach for the production of renewable energy that re-establishes competitive balance between sectors. That the CCA support the elimination of tariffs on imported biofuels.
That the CCA emphasize that any further encouragement of the biofuels sector should focus on the production of biofuels from sources that do not impact the availability of livestock feed. That the CCA formally request that the government incorporate safeguard measures in the event of crop shortages, that may include the elimination of any remaining tariffs, reduction of mandates, and/or reduction of incentives.
To be clear, the CCA does not have an antibiofuels agenda. Rather, the CCA clearly recognizes Canadian feed grain producers as partners in our industry, and that their success is vital to the long-term competitiveness of the Canadian cattle and beef industry. We recognize they cannot be successful selling their product below their cost of production. The feed grains industry must have the opportunity to sell their product into the highest value market available regardless of the location of the purchaser or the end use of the product. Adequate funding must be made available for research, and new variety-registration regulations must encourage the development and registration of better performing feed grain varieties.
I am a firm believer in letting the market dictate the highest use for a product, and if the highest use for feed grains is legitimately ethanol production, then so be it. Currently, however, the playing field is not level. Biofuels policies have created a competitor for feed grains that is directly subsidized and have the potential to undermine the competitiveness of the livestock feeding industry in Canada. Based on concerns expressed to me at our AGM, we will place a heightened priority on this issue and advocate the clear message that biofuels policies should be transitioned to a market-based approach consistent with CCA policy.
TravisToews ispresidentof theCanadian Cattlemen’s Association