August 15, 2006

 

Australia's animal feed industry incensed by subsidies for ethanol fuel

 

 

Australia's animal feed industries Tuesday (Aug 15) renewed criticism of a government push to increase use of ethanol fuel, even as the grains industry welcomed the latest initiative.

 

Livestock industries, which are big users of feed grains to grow cattle and poultry and for eggs, believe the increasing government subsidisation of ethanol would artificially increase demand for grain and its prices, threatening their long-term viability.

 

The grains industry argues farmers would benefit from increased diversity of income sources, while grains output would increase to meet increased demand from ethanol producers.

 

Industry representatives were commenting after Prime Minister John Howard unveiled an A$17.2 million grant programme to enable retail fuel outlets to upgrade equipment to increase sales of ethanol-blended fuel as part of a wider A$1.58 billion package to reduce high fuel prices.

 

Howard said a lack of distribution infrastructure is preventing the uptake of ethanol. 

 

Cash grants of up to A$10,000 will also be available to service stations that reach predetermined sales targets for E10 fuel, which is normal unleaded gasoline blended with 10 percent ethanol.

 

Sale of ethanol-blended fuel is available nationally only at about 260 service stations, with companies including Caltex Australia Ltd. (CTX.AU) and BP PLC (BP) planning to increase its availability. Last week, these two companies announced a three cents/litre reduction in the retail price of E10.

 

Other recent government support for biofuels includes more than A$37 million in capital grants, a further A$52 million in production grants and a honeymoon from excise of 38.14 cents a litre for domestically made ethanol.

 

Kevin Roberts, vice president, of the Australian Lot Feeders Association, said government decisions about ethanol now are based on politics rather than rational economics, and are increasing the cost of grain, a major input for livestock feeders.

 

The association's objection has always been and would remain the same; effectively, there is a subsidisation of one industry against another, he said.

 

If ethanol is the panacea as promised, then it ought to be able to do it without government intervention, he added.

 

About one-third of cattle slaughtered in Australia are fed on grain, with this sector mostly servicing premium export markets. About two-thirds of Australian beef production is exported.

 

Roberts is concerned the higher prices for grain will reduce the global competitiveness of the industry, with any softening of demand flowing through to the wider Australian cattle industry, potentially threatening overall beef exports of more than A$4 billion a year.

 

The Australian Chicken Meat Federation and Australian Egg Industry Association also say ethanol plants are sheltered from economic reality, warning that higher grain prices will feed into food prices.

 

But grower lobby Grains Council of Australia Tuesday welcomed incentives to provide more E10 at service stations, as it should result in greater take-up of the fuel and a more diverse income stream for farmers.

 

Chairman Murray Jones also challenged claims a grains-based ethanol industry will increase the prices of feed for livestock industries.

 

These claims are not credible, he said in a statement. There will be a significant lag of two to three years before ethanol production capacity is built and comes into production, Jones said, meaning that the (grains) production sector would have a chance to adjust to supply as it gradually comes on stream.