April 29, 2008

Tyson calls on cut of ethanol subsidies

Tyson Foods Inc. recently called for ethanol tax subsidies to be reduced or dropped and for the government to end import tariffs on ethanol.

The request of Dick Bond, Tyson's president and chief executive, has been rejected by major players in the renewable fuel sector, such as Archer Daniels Midland Co. (ADM), the largest US ethanol producer.

Bond has been the food industry's most outspoken advocate of the need to reform US renewable-fuel policy, which he claims distorts the corn and soy market for human and animal consumption. 

He warned that upward pressure on food prices would get much worse, with 30 percent of US corn production this year expected to be used for ethanol production. 

Tyson has been hit by higher feed costs for its poultry, pork and beef processing business, which Bond attributes to competition for corn from ethanol producers, as well as rising global demand for protein. 

Analysts are expected to question ADM executives about the potential impact of any change in US energy policy on its earnings, which have become increasingly reliant on ethanol production over the past three years. 

The food and agribusiness sector remains divided over its response to US renewable fuel policy, which includes a 51-cents-a-gallon subsidy on corn-produced ethanol and a tariff on imports, mainly sugar-based ethanol from Brazil. 

Tyson reported a net loss of US$5 million in its fiscal second quarter ending March 29, and on Monday warned higher input prices would add US$1 billion to input costs this year, with US$600 million coming from higher corn and soymeal prices.