Industry coalition supports letting ethanol tariff expire
April 30, 2010
by Bryan Salvage
WASHINGTON – On April 28, the House Ways and Means Committee was asked in a letter sent by major livestock and poultry trade associations, including the American Meat Institute, the National Turkey Federation, the National Chicken Council and the National Cattlemen’s Beef Association, to allow a 30-year-old tax credit and a protective tariff for ethanol to expire at year’s end.
“Although we support the need to advance renewable and alternative sources of energy, we strongly believe that it is time that the mature corn-based ethanol industry operates on a level playing field with other commodities that rely on corn as their major input,” the groups wrote in a letter to Congressmen Sander M. Levin of Michigan and Dave Camp of Michigan, chairman and ranking Republican members, respectively, of the tax-writing committee. “Favoring one segment of agriculture at the expense of another does not benefit agriculture as a whole or the consumers that ultimately purchase our products.”
The groups discussed their serious concerns over the negative economic effects that government support for corn-ethanol has had on animal agriculture, specifically the Volumetric Ethanol Excise Tax Credit (V.E.E.T.C.) and the import tariff on foreign ethanol.
“The blender’s tax credit, coupled with the import tariff on foreign ethanol, has distorted the corn market, increased the cost of feeding animals, and squeezed production margins -- resulting in job losses and bankruptcies in rural communities across America,” they wrote.
The letter points out a September 2008 report by the Congressional Research Service (C.R.S.) stated the dramatic increase in livestock production costs were attributed to higher costs for feed. The C.R.S. report said “the main driver was feed, which may account for 60%-70% of total livestock production costs in any given year.”
Between 2005 and 2008, corn prices quadrupled, reaching a record high of more than $8 a bushel; a pattern that is unsustainable for our industries, the letter said.
“There is no safety net to protect against the volatility in the commodity markets, forcing all industries to pay higher prices for input costs due to the fluctuations in the corn market,” the groups said. “While there has been some recent relief in corn prices, current market prices are still 50% higher relative to pre-R.F.S. conditions,” said the letter, which noted animal agriculture has suffered serious economic hardships:
• The turkey industry has endured the deepest cutbacks of any in animal agriculture – a decrease in turkeys raised of more than 6% since 2007 levels and a near 9% reduction from 2008 levels – to adjust to these increased input costs. The turkey industry eliminated nearly 3,000 jobs vital to rural America in 2008 and 2009 alone.
• The U.S. pork industry endured the two of the most challenging years in the industry’s history in 2008 and 2009. Total losses for average farrow-to-finish operations amounted to more than $6.2 billion and were nearly $23 for each animal marketed from October 2007 through January 2010. This financial disaster occurred despite near-record hog prices in 2008.
• From December 2007 to February 2010, the cattle-feeding sector of the beef industry lost a record $7 billion in equity due to high feed costs and economic factors that have negatively affected beef demand.
• The cumulative additional cost on the broiler industry since corn prices began their rise in the fall of 2006 has been almost $15 billion, as of April 2010. This additional cost does not include the higher cost of other feed ingredients, such as soybean meal, whose prices tend to move in tandem with corn. Accordingly, broiler companies have suffered reduced profitability.