Ethanol Development Threatens Western Canada's Competitive Position

CANADA - The George Morris Centre suggests, if Canada follows the US lead in encouraging aggressive ethanol development, the cost of feeding livestock in Canada compared to the US is likely to increase, writes Bruce Cochrane.
calendar icon 28 December 2007
clock icon 3 minute read

Research by the George Morris Centre indicates, that when you compare feed ingredient costs during the first three quarters of 2007 to the average price of those same ingredients from 2003 to 2006, the cost of feeding hogs has gone by about 10 dollars per pig.

Senior research associate Dr. Al Mussell observes, so far, ethanol development has not had a material impact on driving up feed costs in Canada compared to the US but that could change.

Al Mussell-George Morris Centre

The real central issue here is how feed costs in Canada change relative to the US

Whether feed costs are high or low doesn't make a strategic competitive difference per se.

It can certainly hamper producers cash flows and so forth but, in terms of whether or not we're competitive with the U.S. in producing livestock, what's important is what our prices are here relative to the U.S.

Up to this point, again, we're way behind the US in terms of ethanol development so I don't think it has been a particularly material driver.

But the discussions that we're having now with more and more provinces coming in with blend requirements, more and more federal money being devoted to subsidizing ethanol production, it looks like we're going to try and follow the US lead in this regard.

If we do that then we will start to increase feed ingredient prices relative to the US and that's going to be a very significant issue in terms of our strategy for livestock and meat export in western Canada.

Dr. Mussell says we already have a lot of pressure on feed costs and, if we build more ethanol plants in western Canada that use feed wheat, we're going to increase the cost of feed wheat which will pull up barley prices relative to what's happening in the US

He notes a lot of Canadian producers are already finishing hogs in the US to get better feed cost situations.

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