Agriculture Committee on June 6th, 2006

[The Chair, Conservative, Gerry Ritz]

Thank you, gentlemen.

Mr. Steckle, five minutes, please.

[Paul Steckle, Liberal, Huron—Bruce, ON]

I want to begin with Mr. LaBelle. First, let me compliment you on your enthusiasm and your optimism in what you see going forward. I share that, and I think you're among friends in this room.

I have some concerns in terms whether the farmers are ready. If the government of today were to provide the tax incentives and the opportunities for them to move in the direction of cooperatives--if we want to use that term--are the farmers ready to participate? Do the Canadian farmers have the same kind of entrepreneurial spirit as American farmers do? Can we get our act together?

[Lionel LaBelle]

Thanks for the question. We spent hours debating this issue, and I would argue that it's fundamentally flawed if the federal government comes up with a program and there's no take-up by the farmers. That would be a tragedy.

Last week alone I made a circuit within Saskatchewan over a three-day period and visited nine separate communities. I think those of you who understand the Saskatchewan psyche today will realize that we're in crisis. I would argue that the groundswell of support for renewable fuels in our part of the world is so strong that my answer to you is yes, there will be tremendous take-up. It will be aggressive, it will be fast, and it will have a domino effect.

With the right federal program, we believe we'll see four, five, or six plants immediately, and it will create courage for other communities to get involved. That's the key to this story. I wouldn't be running as hard I am for as long as I am if I didn't believe that.

[Paul Steckle, Liberal, Huron—Bruce, ON]

Thank you. I appreciate that. I'm pleased to hear that response, because we have Rory here this morning and people not representing Cargill.

You presented a pretty optimistic picture for someone who's a shareholder in a certain plant in the U.S. If those returns are really that great--and I have no doubt that they are--why are the Cargills in the future of biodiesel not out there building plants? Why isn't Maple Leaf building a plant to use the product?

Maybe Mr. Wardrop can answer the question, but this looks pretty optimistic to me. Boy, if I was in that business and I had the raw product, all the offal product....

Of course, another question I have is, how does that relate back to Mr. Bezan's question? Now we have some value to it. Is this reflecting back as value to the producer?

Anyhow, I think you want to get into it.

[Ron Wardrop]

Thanks for the question.

We're looking at what you need: demand for the renewable fuels. That's why the renewable fuels standard is going to be so important. It's nice to have the returns and some of the things we're looking at, and we are trying to value-add to our products, but you need somewhere to sell it. That's where you come back to the level playing field around incentives and making sure there's a demand within the Canadian market.

It's a very poor business model that relies on another jurisdiction, like the U.S., to keep allowing us to export our fuel to them. You're not going to get huge in a business just to export. You should have some domestic demand. The renewable fuel standard is that opportunity, and making sure that biodiesel is well represented within that standard is also very important.

So don't just make it an ethanol standard, make it a biodiesel and an ethanol standard. Make it a renewable fuel standard and get the demand started. Get people using renewable fuels and biofuels in Canada, and you will see plants come. There will be job creation. There will be capital spent on these plants. But we need the market, and that's why the renewable fuel standard is so very important to getting this all going.

[Paul Steckle, Liberal, Huron—Bruce, ON]

From an environmental standpoint, we all know that for environmental reasons alone we need to bring these two industries on at a much quicker pace than we have been. But can you perhaps dispel this morning, once and for all, the argument that has been put forward by certain groups, particularly the oil industry, that energy in, energy out does not equate? Can you put that on the table and have us understand it better, perhaps, once and for all?

[The Chair, Conservative, Gerry Ritz]

You have 28 seconds.

[Lionel LaBelle]

Thanks very much.

This is fundamentally a flawed debate, and I have spent the last four years of my life debating this and challenging people on the debate. You really have a couple of scientists out there who are making some bold claims, and you have another hundred on the other side of the page who are doing some really remarkable things. Every hour the technology gets better in ethanol. Every hour there's new fermentation, cold cook technology, etc.--we're just getting better. And if we take dry distillers grain and use it as an energy source, we're going to go from one to two or two and a half. It's unbelievable. But the bigger picture, the one that frustrates me the most, is why the question isn't asked in the same sentence, “As compared to what?”

If you want to really talk about life cycle analysis, let's talk about coal. It is absolutely abysmal. It's godawful. For every unit going in, about 0.39 comes out. It's terrible. The tar sands are just as bad. With coal, you extract it from the ground, you burn it, you create steam, you run a generator, and then you put electricity in a line where you can have as much as 50% line loss, and yet that never comes out in the discussion. If at the very least we displace fossil fuel with renewable fuel, we've hit a home run.

So with all due respect, I welcome the debate.

Is that my 28 seconds?

[The Chair, Conservative, Gerry Ritz]

Very well done, Lionel, thank you.

[Jeff Passmore]

Mr. Chairman, could I have just 10 seconds?

I just heard a really good answer to that question provided by a professor at Argonne National Lab. He said, in terms of just showing what a red herring this is, society does not make energy decisions based on the question of energy balance. We make decisions based on the question of energy value. So what's more important, that lump of coal that's sitting out in the pit or the fact that these lights are on and we have electricity so that we can see in this room today? The energy balance of electricity is negative. The energy balance of a gallon of gasoline is negative. But it's energy value that society makes its choices on.

[The Chair, Conservative, Gerry Ritz]

Good point.

[Ron Wardrop]

Very quickly, NRCan has studied our plant, since it's up and new and running, and has come back showing that for every unit of energy in, there are about four units of energy out.

[The Chair, Conservative, Gerry Ritz]

Thank you, gentlemen.

Mr. Gourde, you have five minutes.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Good morning. I think that we are all aware of the opportunities that the use of ethanol will provide for Canadian farmers and for the industry.

The industry is proposing a partnership with the farmers, and I think that they will be very happy with it. On the other hand, in the North American market, the price of corn or grain used for making ethanol is much too low. There was a great deal of discussion about advantages, and it would certainly be a great advantage if we could find a new market for Canadian and North American grain. However, the price of grain is currently so low that the ethanol industry is very profitable. Currently, Canada's best average farm gate price is $125 per tonne. Normally, if the United States produced less grain, the prices would probably be somewhere around $185 or $190 per tonne.

Could the ethanol industry survive if the price of the raw material was less competitive, or should we choose to use biomass? We could use annual plants that could be produced at costs below $100 or $125 per tonne, and it would be no doubt be better for the environment.

Given the amount of arable land that Canada currently has, would we be better off if we produced less traditional crops? Things could evolve, and around the year 2015 or 2020, these crops could yield two or three tonnes per hectare rather than 1.25 tonne per acre.

[The Chair, Conservative, Gerry Ritz]

Mr. Baker, you seem keenest.

[Bliss Baker]

Thanks.

Let me just address that first by saying that our company—certainly our industry, but our company—will not survive if we don't have a healthy, sustainable, and profitable agriculture sector in Canada. That's a given.

You asked whether we could sustain higher grain prices as an industry. The answer is absolutely, yes, if all grain prices went up. The problem we get into is when one jurisdiction has higher prices than another. If you had trade barriers, or something happened, and all of a sudden our corn prices in Quebec were higher than those in any other jurisdiction in North America, yet we were still competing with U.S. and Ontario ethanol, where their input costs are different, that's where we'd run into big problems. If all grain prices rose, as we expect them to in North America with the increase in ethanol demand, then yes, of course we can survive, as long as it's done equally across jurisdictions.

[Kory Teneycke]

Just to add another element to that, though I know it's a little bit beyond your question, the selling price for ethanol right now is at record highs. That's because it doesn't just track the price of inputs; the market is also affected by what the price for gasoline is. When you have refining shortages, as we experienced last year as a result of hurricanes in the gulf, there's pressure on the refining system even above what is naturally there. Ethanol can have a value that is very heavily affected by that.

Also, North America is being very heavily affected by bans of MTBE, which is a fuel additive. There are about nine billion gallons of it in the U.S. right now, and it's being banned, basically, state by state. That's creating some demand for ethanol, because ethanol is a sort of replacement product as a gasoline additive that can raise the oxygenated level of fuel.

So you have a bunch of things going on that are driving the price of ethanol to record highs in this market, which is one of the reasons why so many plants are being built. I think one thing that is important to remember is that this market will not always be as good as it is today, not just because of potential changes in agricultural commodity prices, but because ethanol prices themselves are unlikely to maintain the high levels they're at today. You could make a business case for making ethanol in a bucket right now and it would be profitable, because the market price is so outrageously high compared with what it has historically been.

Just to give you an example from the last energy crisis in the U.S., in the mid-eighties, in 1985 there were 163 ethanol plants operating in the United States, and by 1990 there were 21; 140 ethanol plants had gone bankrupt when energy prices went down. It's important to take a longer view at not just the agricultural market—commodity prices—but also at the energy market.

[The Chair, Conservative, Gerry Ritz]

Is there anyone else with a quick redirect on that?

Your comment about making ethanol in a bucket puts a wrinkle in your economies of scale argument, Kory. You might want to be careful with that one.

Madame DeBellefeuille.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

We are responsible citizens. In 2006, if we want to develop profitable opportunities both for the processing industry and for producers, we must not forget the concept of sustainable development.

You said little about the environmental impact of this production. In Quebec, we make ethanol mainly from farm products and from forest residues. Do you not think that this would be a more profitable option? In Quebec, 90% of corn production goes to domestic consumption and there is no real surplus.

[Kory Teneycke]

I would love to talk at length about the environmental benefits. Because this is the agriculture committee, we focus more on the benefits to producers. But you're right, sustainable development is a big part of this story, and GHG reductions are a big part of the story.

I'll let Bliss answer the corn portion of the question, but I would encourage anyone who's in town on Thursday and interested in that part of our story on the sustainable development side to attend when we're hosting a breakfast speaker. Paul Roberts, who writes for the L.A. Times, Harper's Magazine, and is the author of a book called The End of Oil, will be speaking at 7:30 a.m. at the Westin Hotel, and you are all invited to attend.

[Bliss Baker]

On the issue of grain surplus supplies in Quebec, the number one reason we're in Quebec and building a plant there is because of the surplus corn. Farmers--again, a big part of the reason for us being there--attracted us to that region because they had corn to sell. We located in Varennes because it was close to surplus corn. The last time I checked the stats, Quebec was still a net exporter of corn, so those farmers will now have an opportunity to sell their corn in their backyard, directly to our plants, as opposed to shipping it to the U.S.

[Jeff Passmore]

I'd like to address the question from the point of view of agricultural residues. As Kory said, a big part of our story is sustainability, and as Bliss said, if we don't have successful agriculture, we don't really have a business.

From the point of view of gathering corn stover--the cobs and stocks and leaves--in western Canada or Quebec, we don't pretend to know more about land husbandry than the farmer. If you were the farmer and had a thousand acres and I came to you and said, “Listen, can I have the stover or the straw from your farm? I'd like 300 acres a year”, you'd say to me—and this is actually in real cases, some farmers have said to me—“Three hundred acres? You can have the straw from all 1,000 acres”, or they've said, “Three hundred acres? You can't have any.”

It depends on all sorts of issues around soil types and farming practices and whether they want to switch from low-till to no-till agriculture. The point is that we leave that decision up to the farmer. He decides how much residue he wants to part with. Typically, it's about one-third to no more than 50% of the available residue, and then he rotates the land that he takes the residue from on an annual basis.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Do the new technologies allow us to make a transition towards other kinds of raw material, like beets? For instance, you said that there is a great deal of wheat in Saskatchewan. Could we make transfers? Currently, does technology allow us to use other kinds of raw materials, such as beets?

[Kory Teneycke]

It depends on the local growing region. There's an interesting case right now on tobacco lands around Lake Erie. They're looking at using a combination of sweet potatoes and millet as feedstock for ethanol. It really depends on your local growing conditions.

This industry looks very different all around the world. On the biodiesel side, you'll end up using whatever oil-producing commodities you have in your local area. In some parts of the world, like Indonesia, it will be palm oil. For the ethanol industry, it will always be sugars and starches. When you look at places like Brazil, it's all about sugar cane, not about corn and wheat. So it really depends.

If sugar beets can be grown effectively in your area, and this is a market that makes sense, then yes, absolutely, you can certainly make ethanol out of them.

[Lionel LaBelle]

If I could respond, one of the things that's unique, I think, is some of the new technologies that are being attempted. I'll give you an example. In our part of the world, we have green-based technology. From my understanding from the engineers, a corn ethanol plant will just be able to handle corn. A wheat-based ethanol plant will be able to handle wheat and corn. We think that's a nice flexibility, from that perspective.

But there are some unique things going on, and I'll give you an example. In Nebraska, a company called Abengoa has partnered with a firm called SunOpta. They're doing a pilot plant, building a pre-treatment plant beside a grain-based plant, where they're attempting to take a cellulose product and converting it into ethanol within the same factory. So whether they're successful or not, time will only tell. But it's really unique, if you think that, going forward, this plant may be able to handle two streams of material. That really makes it quite dynamic. That's what's happening in research and development just in North America alone.