For Canadian “Bio-fuels” Value Added Should Start At The Farm Gate.

Canada is moving toward a 5% bio-fuels policy by 2010.  That’s the word from agriculture minister Chuck Strahl and Environment Minister Rona Ambrose.  Think about it.  Every time you fill your pickup in 2010 3 litres will be straight from your corn or soybean field.  That’s if you drive a 22-year old pickup truck like I do.

The question is will the old Dodge make it to 2010?  I don’t know.  Getting a slurp of that bio-fuel might make it rear up and sputter.  The key will be for its owner to make a few more dollars off that bio-fuel.  If not, why are we even going there?

We’ll see.  Ethanol and bio-diesel is a growth industry in North American agriculture.  Plants are seemingly going up everywhere.  They are the lifeblood of our political culture looking at a sure and fast way to solve farm incomes.  Right now it’s just a theory based on hype and expectations fueled by the bio-fuel lobby thirsting after cheap feedstocks.

When the Ontario Corn Producers Association launched their countervail action the whole ethanol industry lined up against them at a time when farmers were rallying across Ontario.  They want their corn, cheap, cheap, cheap and if that is dumped subsidized US corn so be it.  It is one thing to want a commodity at world price, but it is another to have ethanol subsidized by government.

Ethanol is no panacea.  Some of the biggest cheers I got this past winter at five different farm rallies were about the Ontario ethanol policy.  Farmers want to be included.  As it is now, the Ontario ethanol policy is a green light to import US corn.

I have even read some ethanol-sponsored propaganda of how the increased production of ethanol will eventually increase the price of Ontario corn and increase present Ontario acreage by one third.  The hype by this industry has no shame.

US corn carryout stocks in 2004/05 were 2.11 billion bu.  The estimate for 2005/06 is 2.23 billion bu. (by itself, lots more corn than the ethanol sector uses in total).  So, even with an increase in corn usage for ethanol production of 277 million bu. from 04/05 to 05/06, US corn stocks still increased 120 million bushels even though average yield dropped sharply from 160.4 bu/acre in 04/05 to 147.9 bu/acre in 05/06.  There is more to this, but clearly there is corn everywhere.

It pretty obvious to me that in Canada the ethanol industry is highly dependent of increasing government support.  They balance that by implying that their capacity to eat corn is part of the answer to chronic farm income problems of corn producers.  However, this is crazy.  Demand for corn has increased since 1997 in Ontario but both price and acreage has declined.  The increase in demand has been met squarely by importing cheap subsidized and dumped US corn.

So when it comes to Rona Ambrose and Chuck Strahl making an announcement about a “bio-fuels” strategy, there will be certain groans in parts of farm country.  Simply put the producers of those feedstocks must be compensated fairly for what they do.  It shouldn’t be a bigger green light for dumped US feedstocks.

Maybe Agriculture minister Chuck Strahl recognizes this.  This is what he said in last week’s Saskatoon’s Star Phoenix News.

“It is increasingly obvious that if you are trying to compete against Brazil or some of the other emerging countries that are producing bulk durum or canola, it’s awfully hard to compete on the unit cost. Where the money is to be made is in the value-added [products]. The key is to make sure farmers are part of that value-added stuff.”

So maybe there is a little hope.  I don’t agree with Strahl about what he says about Brazil.  However, that is for another day.  He needs to keep in mind Brazil produces great gobs of ethanol made from sugar cane.  They would love to fill any Canadian need.

I’m not sure how all of this is going to play out.  Will ethanol plants in Ontario be the sites of farmer protest in 2006 and 2007 like they have in the past?  Will the Canadian Corn Producers who appealed the CIIT decision on the corn countervail eventually prevail forcing the ethanol industry to get behind farmers who want a real agricultural safety net?   Or will Mother Nature take over at least for 2006 and make low corn prices a thing of the past at least for the rest of this crop year?

Nobody knows.  The key is to be honest about “bio-fuel” and what that could mean for Canadian farmers.  It isn’t the panacea for Canadian agriculture projected by some.  There needs to be safe guards in place so Canadian farmers can benefit too.  Capturing the “value added” needs a reality check.  For Canadian “bio-fuels” that should start at the farm gate.