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Meat and dairy farmers push back against ethanol demand

September 14, 2007|Christopher Leonard | The Associated Press

ST. LOUIS — As a chief advocate for corn farmers around the country, Rob Litterer will be working the halls of Congress this fall to push for increased ethanol production. But he's facing stiff opposition from what on the surface seems an unlikely source -- the farm lobby.

The burgeoning ethanol industry is creating a wave of prosperity for rural towns throughout the Midwest, but the energy bonanza is also pitting farming groups against each other.

Corn farmers are pushing for more ethanol production as the industry creates an enormous market for their crop, giving corn prices the kind of lift they haven't seen in years. But the corn farmer's win is the hog farmer's loss. Meat, dairy and other food producers are pushing back against the ethanol boom as higher grain prices cut into their already slim profit margins.

"There is no question they have a policy that they are opposed to an increase," said Litterer, the incoming president of the National Corn Growers Assn. "But I don't think their opposition carries any water."

The tension between grain producers and food producers is roiling agricultural markets around the world as high oil prices spur governments to subsidize food-based fuels such as ethanol and biodiesel.

The Mexican government this week put a cap on tortilla prices after they shot up 20% to 30% because of questions about the supply of U.S. corn. Brazil will ask the World Trade Organization to formally investigate U.S. farm subsidy programs -- including payments for ethanol production. Brazil is the second-largest producer of ethanol in the world after the U.S., but is the No. 1 exporter of the fuel. In Brazil, ethanol is made mainly from sugar cane.

The political waves -- and their effect on government policy -- can mean life or death for the budding biofuels business. Ethanol and biodiesel served a niche market before the U.S. government imposed a mandate -- called the Renewable Fuel Standard -- requiring the U.S. to use 7 billion gallons of renewable fuels by 2012.

This fall Congress will consider a fuel standard that could boost production as high as 36 billion gallons by 2022. But the future of that bill is uncertain because of the food fight shaping up between grain producers and livestock lobbyists.

"It's very true that the agricultural lobby will speak with a louder voice if it's saying the same thing. In that sense, it's been a less united voice than it has in the past," said Pat Westhoff, an economist with the Food and Agricultural Policy Research Institute at the University of Missouri.

Westhoff said it was inevitable that a rise in corn prices would increase the cost of food. Corn and its derivatives, such as corn syrup, are staples for a variety of foods including soft drinks and wheat bread.

But that doesn't mean the average person will notice a price increase at the store, he said.

U.S. consumers spend about $700 billion a year on food. A $6-billion increase in the cost of corn -- which amounts to about $1 a bushel -- would raise food costs only about 1%, he said.

But the pain is more acute for corporations like Tyson Foods Inc., the nation's largest meat company. The Springdale, Ark.- company's stock fell 13% this month when it lowered profit projections for the year. Tyson said grain costs for its chicken feed shot up $113 million in the third quarter of this year alone compared with the year before.

The American Meat Institute has taken heed. Institute spokeswoman Janet Riley said the group was opposed to more ethanol mandates. The group has joined dairy, egg and turkey lobbyists to fight any increases in mandates that could divert more feed into fuel refineries.

Litterer said fears of rising corn prices were over-hyped. Higher prices have induced farmers to plant more, which increases supply and brings the price back down, he said.

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