September 18, 2008

Corn-based ethanol production in Ontario costs the province's economy US$150 million per year, a sum that will be paid most directly by the pork and beef sectors, according to an independent report by Canada's agri-food think tank, George Morris Centre.

The report finds that the rapid development of ethanol production capacity in Ontario may lead to a long-term import pricing basis for corn, which would undermine the basis for cost-competitive pork and beef sectors while inducing sharp declines in herds.

Ontario marketings of hogs and cattle have exceeded the capacity of domestic feed corn, therefore downsizing is required, said Al Mussell, lead author of the report.

Mussell added that with growing corn appetite from ethanol plants which are backed by subsidies, the export-based red meat industry in Ontario would not be able to compete for corn and the firm import pricing basis for corn that results will decimate the red meat industries.

The report traces the links between corn production, feed consumption and industrial uses, and ethanol production and distiller's dried grains (DDG) in its analysis of forthcoming adjustments as ethanol production increases.

"Even when we force the maximum feasible inclusion rates of DDG into livestock rations, the implied shrink in hog and cattle marketings that would return Ontario to competitive corn basis levels is simply dramatic", said Graeme Hedley, a George Morris Centre Associate.

The report concludes that even at US$148-156 million per year, these results significantly understate the entirety of adjustment costs. Mussell said the results have not included losses or devaluation in feed, veterinary or animal breeding, and red meat segments in Eastern and Western Canada will be severely impacted.