Biofuels the Department of Agriculture

Biofuels

The Department of Agriculture has been asked to provide an opinion on the issue of biofuels so that the party can develop a position on the matter for the upcoming federal election. If re-elected, we will need a clear, concise strategy for addressing the issue of biofuels. The issue represents a tradeoff between the uses of agricultural product, especially corn, to create ethanol. This reduces the amount of corn that goes into the food chain, which has been blamed as a contributing factor in rising fuel prices.

It is the position of the Department of Agriculture that the government should let the free market dictate the use of food products for the production of biofuels. We believe that this is the best course of action for several reasons. One is that the impact of price increase in agricultural prices is overstated. The majority of our corn production is used for animal feed, rather than directly for human food. As a result, products such as corn represent a relatively minor input in the cost of food at the grocery store. This is especially pronounced when we consider the high degree of processing that most food eaten has undergone. Evidence in the United States has shown that "when there are cost shocks in the food processing system due to changes in the commodity or farm product market, most retailers respond by passing on a fraction of their higher costs to consumers." (Leibtag, 2008). Thus, we do not believe that there are significant negative impacts on food prices to Canadians as a result of commodity price increases due to ethanol usage.

We also believe that higher commodity prices will benefit Canadian farmers. Demand for biofuel is increasingly rapidly. In the U.S., 14% of total corn production was used for biofuel production; that figure is expected to increase to 30% by 2010 (Lapidos, 2008). As demand increases, so do corn prices. This stimulates demand for other grains that can be used as feed, such as wheat or sorghum (Ibid.). The animal feed business is also finding other substitutes, such as ethanol byproducts (Hoffman et al., 2007). Therefore, we believe that not only will corn farmers benefit, but farmers of other feed grains will benefit as well. We believe that this will be a short-term impact, as biofuel is likely to act only as a bridge to other forms of energy not yet developed.

In terms of energy, we believe it is important to develop alternative sources of energy. Biofuel from corn is, at presently, relatively inefficient. Surveys indicate that at best biofuel generates 1.3 times the energy it costs to product (Jaffe, 2007); several studies indicate it generates less than what it costs to produce (Wald, 2007).

Moreover, natural gas is the standard fuel required in ethanol production and our production already does not match our consumption (Ibid.). As a result, we do not see biofuel as a long-term solution to our energy problems. However, it can act as a valuable bridge, since biofuel is ready for market today and many of the best substitute options are only in the development stages.