http://www.jamaica-gleaner.com/gleaner/20070720/business/business5.html
Corn-fed ethanol production takes food prices higher
published: Friday | July 20, 2007
John Myers Jr., Business Reporter
World market increases in the price of corn make animal feed more
expensive to produce, and chickens more costly to grow. Jamaica Broilers
says chicken meat prices have increased 7.2 per cent since January.
Here, David Taylor, manager of the hatchery, shows off young chicks. - File
Jamaica buys some 300,000 tonnes of corn on the world market annually
for the manufacture of animal feed, sector companies say, but almost
daily the price for the commodity climbs higher as competing demand from
ethanol producers scoop up supplies.
On Wednesday corn settled at US$3.27 per bushel, its lowest point so far
for this calendar year, but contracts for delivery into December see
prices ranging between US$3.80 and US$4.07.
Assuming an average price of US$3.80 per bushel - there are
approximately 40 bushels in a metric tonne - Jamaica's import bill for
corn this year will top US$45 million (J$3 billion).
Poultry and animal feed producer, Jamaica Broilers, said in January that
the price it paid last year for corn was US$2.30, and that it was facing
prices as high as US$4.20 per bushel, alongside its announcement of a
pending increase in chicken meat.
The company's senior vice-president, Christopher Levy said at the time
that the price for corn in the U.S. had risen over 100 per cent in a
year and predicted that it would continue to rise due to the increasing
use of the grain as feedstock for ethanol.
On Thursday Broiler's vice president for marketing of protein products,
David Mair, said distributor prices, or the price at which the company
sold to retailers had actually moved up by 7.2 per cent between January
and July.
Year-on-year increase - July 2006 to July 2007 - was 16 per cent.
"The increase was largely because of corn and other inputs," said Mair.
With the movements, chicken is currently distributed to companies at
$164.88 per kilogramme on the A-grade product, he said.
But: "That's not the final price to consumers," said Mair. "Retailers
add another mark up."
Five years ago, in 2002, the distributor price was $99.8 per kilogramme.
Local grain no option
Buying the grain locally is not an option for animal feed processors
since corn production in 2006 was only 1,893 metric tonnes, according to
figures published by the Statistical Institute. Even at its all-time
peak, local growers only produced 4,044 metric tonnes of the crop in a
year, levels recorded a decade ago in 1996.
Jamaica Broilers' financial controller Ian Parsard nixed any idea of
strategic alliances with local growers to produce the grain domestically
at the levels needed by its feed factory, saying the land space was just
not available.
"That whole operation of growing grain is one of major scale," said Parsard.
"It would be too high-cost." Literature produced by the American
universities suggests that it takes investments of US$450 and US$500 per
acre to produce corn using mainly machinery.
Of the total corn imports, Broilers account for 180,000 to 200,000
tonnes, said Conley Salmon, VP for Feed and Agricultural Supplies. The
company is Jamaica's largest poultry operation. Poultry also dominates
the 'meat and fish' market, accounting for 104 million kilogrammes, in a
total market of 139 million kgs. Salmon said the company buys grain once
per month and has paid prices as high as US$4.40 per bushel. With the
increased costs, corn, he said, now accounts for about 40-50 per cent of
input costs for feed production.
The developments in ethanol have two implications for countries like
Jamaica: not only is there less corn for consumption, but the increased
cost of the input into feed ration means higher production costs for
meat producers, and eventually higher shelf prices for consumers.
Like many developing countries, Jamaica depends on the importation of
corn and soybean to manufacture animal feed.
"At least that is going to have a devastating effect on countries like
Jamaica," said managing director of the Jamaica Livestock Association,
Dr. Henry Rainford.
"It's going to send the price of food, chicken meat in particular,
skyrocketing," said Rainford.
New joint report
In fact, a new joint report by the Food and Agriculture Organisation
(FAO) and the Organisation of Economic Cooperation Develop-ment is
warning that the trend, seen in some of the top producer nations of the
world, could destabilise world food prices and lead to more hunger.
The FAO/OECD outlook on the world's agriculture released July 4 say the
growing use of wheat, corn, sugar, oilseed and vegetable oil to produce
biofuel was shifting supplies from food consumption.
The implications are even more serious since the forecast is that
consumption of agricultural products will increase in developing
countries, especially for beef, pork, butter, skimmed milk powder and sugar.
In fact, the JLA executive's take on the Jamaican market is already
reflected in the analysis of consumer prices. Last year, food prices
inflated by 5.3 per cent, fed largely by increases in the 'meat, poultry
and fish' subcategory whose prices grew 12.4 per cent. The year prior,
2005, prices in the subcategory increased by 20 per cent.
The international agencies both made note of the short-term instability
caused by weather-related conditions such as drought and the gradual
erosion of preferential export subsidies, but they also remarked that
the increasing use of grains, sugar, rapeseed and vegetable oils will
have a greater impact on food market prices over the long term.
Fertiliser, another critical input used in the agricultural sector, is
another area where the high demand for biofuels is impacting heavily.
The price of fertiliser has increased over 100 per cent in the last
year, sparking concerns from farmers, industry stakeholders and
Government alike.
The demand for fertiliser has been tracking the corn market, as farmers
plant more to feed the ethanol producing plants.
"Because of the rapid increase in demand for fertiliser to produce the
corn used in producing biofuel, the production cannot keep up with the
demand," said John Allen, managing director of Newport Fersan, Jamaica's
sole producer of fertiliser.
"We have had some raw materials increasing. We have had urea move by 50
per cent, ammonium phosphate has gone up by 105 per cent and urea of
potassium 25 per cent. Collectively the price of fertiliser has had to
be adjusted to take this into consideration."
Brazil is the world largest producer of ethanol. Its annual ethanol
production is projected to reach 44 billion litres by 2016 up from about
21 billion litres now.
In the US, annual maize-based or corn-based ethanol output is expected
to double between 2006 and 2016, and China's is also expected to rise to
3.8 billion litres, an increase of some two billion litres when compared
with current production levels.
In the European Union the amount of oilseeds - mainly rapeseed - used to
make bio-fuels is set to increase from just over 10 million tonnes to 21
million tonnes over the same period.
Not everyone in the food planting sector, however, sees gloom in this
picture.
Senator Norman Grant, spokesman for the national farmers lobby, the
Jamaica Livestock Association, says the prospect of higher food prices
worldwide would force Jamaica to improve its own food production
practices and strive harder for self sufficiency.
"Yes, it will have consequences in driving prices up for the
conventional use of animal feed, but ...with that it creates tremendous
opportunity for the various sub-sectors not just in Jamaica but within
the region," said the Senator.
"We are operating substantially below our productive capacity. There are
a lot of idle lands around and, with the demand for ethanol, what I
would like it to do is certainly push us to ensure that the appropriate
measures are in place to expand in a very aggressive way our production
of a number of crops and ensure that we produce sufficiently to fill
that gap."
The Pig Farmers Association is already looking a animal feed, according
to president Anabelle Williams.
The members have secured some land at the Bodles Research Station "to do
a large development o feed," said Williams.
"We have a climate here which is very good for crops such as cassava,
sorghum and even some maize that we could perhaps start growing on a
commercial basis using both for even (human) consumption animal
consumption as well," she said.
International agencies like the Food and Agriculture Organisation of the
United Nations and the Organsiation for Economic Cooperation and
Development fear that there will be less food for consumption as ethanol
production grows.
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Check for earlier Pacific Biofuel posts: http://pacbiofuel.blogspot.com/
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