Subsidies for ethanol drive up feed costs

Escalating costs of livestock feed are putting the squeeze on dairy farmers in the Inland Empire.

And government subsidies for corn-based ethanol, which drive up the demand for the corn used in feed, are to blame for the price hikes, farmers said.

The Ontario-based Milk Producers Council and inland dairy operators said newly- extended federal ethanol subsidies promoting corn-based ethanol as an alternative to petroleum-based fuels are causing feed prices to rise. By their logic, the policy decreases the supply of corn available for food or animal fodder, leading to a steep rise in the cost of doing business.

"I would say at this point in time, it would be the major problem," said Daryl Koops, general partner of Northview Dairy in Ontario.

Northview Dairy has some 1,400 Holstein cows that eat about 200 tons of corn feed per month, Koops said.

The cost of Northview's corn feed has risen from $175 per ton to $260 per ton in the past five months, he said.

The upshot, Koops said, is that Northview's income is down by roughly 15 percent, meaning that he is likely to be unable to turn a profit.

The federal government has given considerable support to the prospect of using corn-based ethanol to partially replace petroleum-based fuels.

But the government's policy divides the nation's farmers. Corn growers say ethanol has tremendous potential for the environment and the economy. National meat and poultry groups -- like the Milk Producers Council -- have opposed ethanol supports on the grounds that the policy increases feed prices.

The corn-based ethanol industry should be allowed to stand or fall on its own without government-imposed supports, said Rob Vandenheuvel, the Milk Producers Council general manager.

"The foolish thing, in our minds, is why are we putting corn into our gas tanks?" Vandenheuvel asked.

The National Corn Growers Association asserts that ethanol is a boon for American corn growers and the environment. Corn growers report that mixing ethanol with gasoline reduces emissions and provides a domestic source of renewable energy.

The Corn Growers Association reports corn refineries produce ethanol from "field corn" that would typically be used to feed livestock, and byproducts of corn-based ethanol production can be used as food ingredients or as animal feed.

Washington, D.C., has taken corn farmers' side for the past several years.

Congress in 2004 created a tax incentive for oil companies to blend corn-based ethanol with gasoline.

That program was set to expire at the end of 2010, but lawmakers voted in December to continue the incentive for another year.
Oil companies get 45 cents per gallon of ethanol blended with gasoline. The government also imposes a 54-cent protective tariff on foreign ethanol.

The government also mandates the increasing use of ethanol and other biofuels. The 2007 Energy Independence and Security Act required that nearly 13 billion gallons of renewable fuels be blended into transportation fuels last year. The mandate increases to 36 billion gallons by 2022.

Although the Milk Producers Council and their allies were unsuccessful in opposing December's extension of ethanol tax incentives, they will continue to lobby for an end to the policy, Vandenheuvel said.

Northview and other Inland Empire dairies are not alone in dealing with higher corn prices. The grain reached an 18-month high after the U.S. Department of Agriculture predicted corn harvests to drop this year.

In contracts for March delivery, corn prices rose 24 cents to trade at $6.31 per bushel as of Thursday.

In the context of global trade, American ethanol policies are not the only factor affecting grain prices.

Bad weather in Russia, Australia and Argentina led to poor harvests and higher prices for corn, soybeans, wheat and other crops, which in turn makes it more expensive to feed livestock.

Higher feed costs lead to higher beef and poultry prices. Rising food and energy costs were the key factors in wholesale prices rising 1.1 percent in December, the highest increase in 11 months according to the U.S. Department of Labor.