August 11, 2008

US meat groups, processors upset on EPA biofuels decision

Livestock producer groups, meat and poultry processors and the Texas Department of Agriculture quickly expressed disappointment with the Environmental Protection Agency's decision Thursday (August 7) to deny a request to cut its renewable fuels mandate.

On April 25, Texas Governor Rick Perry requested a 50 percent cut in the amount of ethanol that must be blended into the nation's fuel supply - 4.5 billion gallons next year from the current nine billion. Perry and others blamed the mandate for pushing demand for corn to turn into ethanol, thereby raising feed costs.

"I am disappointed in the EPA's decision," said Texas Agriculture Commissioner Todd Staples in a statement. "Agriculture has a leading role to play in lessening our nation's dependency on foreign oil."

However, US policy should not be driven by unsustainable government mandates, Staples said.

Corn prices are up about 60 percent from a year ago, while soymeal - the next largest ingredient in swine and poultry feed - is up about 43 percent.

Federal law allows the EPA to grant a waiver of the Renewable Fuel Standards (RFS) ethanol mandate if officials believe it is causing severe economic harm, and the National Chicken Council believes it is.

"When food prices are rising and chicken companies are losing money because of high feed costs, it is outrageous that the federal government continues to require and even to subsidize the diversion of corn from the food supply into the fuel supply," NCC president George Watts said.

Several organizations participated in an NCC conference call Thursday to discuss the EPA's decision. They argued that the RFS, along with tax incentives for blending ethanol into gasoline and tariffs on cheaper, imported ethanol, have distorted the market and helped drive record prices for corn and other feed grains. This translates into higher prices for food and animal feed, which means consumers pay more for eggs, milk, meat and poultry.

In a separate e-mail, the Texas Cattle Feeders Association said at their peak on June 27, corn prices had increased just more than 200 percent since the federal RFS program began in 2005, and cattle feeders have lost about $1.5 billion. The group remained concerned that the late-planting and delayed maturity of this year's corn crop could cause yields to suffer and result in higher prices.

Joel Brandenberger, president of the National Turkey Federation, in the NCC statement, said US turkey producers incurred more than $1 billion in additional feed costs over the last two years.

Higher corn prices also are creating a serious economic burden for restaurants, which employ more than 13 million people, and for consumers, said Michelle Reinke, director of legislative affairs for the National Restaurant Association, in the NCC statement.

The EPA missed a chance to reduce food prices immediately and, more importantly, to avoid the certainty of much higher food prices in 2009, said Scott Faber, vice president for federal affairs for the Grocery Manufacturers Association, in the NCC statement. He called on Congress and the next administration to restructure the US food-to-fuel policies to avoid runaway food inflation.

Baking and beverage producers also have seen costs skyrocket as demand for corn supplants land use away from wheat and costs for beverage ingredients climb, the NCC statement said.

"We anticipate the rising cost of corn - due to its mandated diversion to fuel - will cost the beverage industry about $2 billion this year," said Craig Stevens, vice president for communications at the American Beverage Association, in the NCC statement.

The NCC provided some statistics on the economic effects of the RFS:

- Some poultry processors shuttered their operations after a 43 percent jump in feed prices from 2007 to 2008.

- Meat processors estimate that consumers could pay 25 percent more for some pork cuts and nearly 40 percent more for some beef cuts by 2009.

- In the US, the index of prices received by farmers for all products increased by 34 percent from January 2006 to May 2008. The index of prices received for feed grains and hay, led by surging corn prices, increased 144 percent over that same period.

- Wheat acreage has decreased by almost 26 million acres since 1982 due in part to increased demand for corn.

- A study by Keith Collins, the former chief economist with the US Department of Agriculture, said biofuels policies, if left unchanged, could increase retail food prices by 23 percent to 35 percent above the normal increase in food prices that would occur over two to three years.

Mike Groseta, National Cattlemens Beef Association president, in a statement said, "Our industry has suffered a record of nearly $1.5 billion in cattle feeding losses between January and June of 2008, which we believe constitutes the severe economic impact necessary to prompt a waiver from the RFS mandate.

"Several million more planted corn acres will be needed in 2009 at a time when competition for acreage is already very tight," Groseta said.

The National Pork Producers Council, in a statement, said the waiver request "would have eased uncertainty over feed supplies and prices and helped bring long-term stability to US pork producers and consumers.

NPPC said pork producers "have been reeling from higher prices for feed, which accounts for 70 percent of the cost of raising a hog."

From September 2007 to April 2008, corn prices rose 124 percent and soymeal prices went up 94 percent, NPPC said. During that time, pork producers lost an average of $30 per hog marketed.

Gary Michelson, spokesman for Tyson Foods, in an e-mail said, "We join consumers, food producers and others in expressing our extreme disappointment in EPA's refusal to grant the waiver. As we noted in our letter in support of Governor Perry's request, we believe there is clear evidence the government's support of using food for fuel is having a significant adverse impact on the economy."

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