
HARRISONBURG – The poultry industry is facing a “silent killer.”
“It’s the worst crisis since the avian influenza outbreak in 2002,” said Hobey Bauhan, president of the Virginia Poultry Federation. “I think this is as every bit devastating or more, yet it’s more of a silent killer in a way.”
Bauhan isn’t talking about a disease outbreak, but rather a federal act that mandates a minimum of 15 billion gallons of grain-based ethanol to be used in fuel blends by 2015, a “renewable-fuel standard” that is set to increase over time.
One study commissioned by the federation estimated that the ethanol program will cost Virginia consumers $455 million more than last year in increased corn prices.
An unfortunate impact, Bauhan said, but one that is only beginning to be felt and understood.
“People are feeling [the rise in corn prices] now more at the grocery store,” Bauhan said. “It’s becoming more and more apparent and evident [what kind of effect the ethanol mandates are having].”
The Cost of Feed
The increased production of ethanol, which can be made from corn, will affect poultry processing companies as well as poultry farmers by driving up the price of feed. Feed makes up 70 percent of the cost of producing a chicken or turkey, Bauhan said.
Corn prices per bushel have gone from $4.60 in December to close to $8 this month, which will result in more than $200 million in increased feed costs for Virginia poultry companies this year, based on a normal corn crop, Bauhan said.
Add to that the very real prospect of a corn shortage from the flooding in the Midwest, and that figure could be substantially higher, he said, all of which hurts consumers down the line.
“Corn costs have tripled in the last two years, and the industry cannot sustain those without passing them on to its customers,” Bauhan said. “Consumers are seeing and will continue to see higher prices.”
This is hurting production at places like Pilgrim’s Pride, which has a plant in Broadway, and has cut back egg placements by 5 percent with the advent of $7.50 corn bushels, said Ray Atkinson, director of corporate communications for the national poultry company.
Pilgrim’s Pride also has let go 1,100 of its 54,000 employees and closed a plant in North Carolina earlier this year.
“What that [mandate] means is that companies can’t produce at the same price as before, and raising prices hasn’t come all the way through the cycle yet,” he said.
Atkinson added that although there are a number of factors leading to high grain prices – including world demand, weather events and fuel prices – the ethanol mandate is the only thing created by the government. Similarly, the mandate is the only thing lawmakers can change.
“Our tax dollars are having the effect of raising food prices and not really lowering energy prices,” Atkinson said.
Supply and Demand
What the ethanol mandates have done to the price of corn stems from a simple economic theory, both Atkinson and Bauhan said: supply and demand.
“It’s analogous to taking $4 gas and then saying we need to take one-third of the gas to use for something else. The timing is horrible,” Atkinson said. “It’s too big of a slice of the food supply to take it out and pretend like it’s not having an effect on food prices.”
About a third of the corn crop is slated to become ethanol this year, Bauhan said.
“We’re not opposed to ethanol per se, but it doesn’t make sense to have food and energy forced by federal mandates to compete with each other,” he said.
But farmers who grow corn for ethanol have an attractive offer, according to the FarmEcon study: More farmers are turning to corn for ethanol due to tax credits, subsidies and import tariffs, and the price of corn has been indirectly inflated by a guaranteed market.
The ethanol market “ought to swim on its own,” Bauhan said. “We don’t have a guaranteed market for our products. It’s an unfair playing field.”
An ‘Immediate’ Solution
With the skyrocketing use of ethanol, poultry industry concerns in the initial stages of the mandate were drowned out, Bauhan said.
But now those voices are coming to the forefront.
Recently, Texas Gov. Rick Perry filed a petition with the U.S. Environmental Protection Agency for a 50 percent waiver from the ethanol mandates, should “severe economic harm” come about, Bauhan said.
“That’s clearly coming about,” he said.
The National Chicken Council added comments to Perry’s waiver petition, saying in a press release that the economic damage from the mandates would raise the price of eggs, pork, milk, chicken and beef an average of 80 percent between 2008 and 2012, as compared to 2002-06.
The comment period for the proposed waiver ended Monday, and the EPA is expected to make a decision later in the summer.
To Bauhan, that couldn’t come sooner: The waiver request, done on a year-to-year basis, represents “the most immediate means available to realistically take the government’s foot off the accelerator of the ethanol policy diverting food to fuel,” he said.
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