Agriculture Committee on Feb. 14th, 2008

[JoAnne Buth]

Right now the proposal is for 2% by 2012, and that's contingent upon the demonstration being completed for cold weather testing. We would prefer to see 2010.

We have plants that are ready to start building, and every day that things get delayed is an increased risk to those companies that are trying to build and the equity they're trying to get from the marketplace. So it creates more instability for them. It's becoming more and more difficult for them to look at when they're going to be able to start, the longer this is delayed.

Having a 2% mandate will obviously stabilize the market. There will be a market there.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

That's two to four years away--2012, 2010. That's pretty aggressive. You're saying you would like to see this moved forward immediately?

[JoAnne Buth]

Moved to 2010, yes.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

All right. Thank you very much.

Dr. Klein, I found your presentation tremendously interesting and somewhat surprising, coming from an Albertan.

You talk about rural development and improvement of farm income. I'd just like to explore this a bit with you to get a little bit better grasp on what you're talking about here. Your position is that the average plant in Alberta, for example, would have an increase of about 35 jobs, but that it would be a net loss in the community itself--or is it just a potential for a net loss?

[Dr. Kurt Klein]

No, I'm saying that the plants provide about 30 permanent jobs in the community. For example, the Lloydminster Husky plant provides 26 new jobs. But that's the gross number of new jobs.

I'm saying that the jobs in other related sectors in that region could well be decreased. For example, if it turns out that the cattle industry is impacted, which we are already certain will happen, the cattle industry might be decreased, in which case there'd be fewer jobs for hauling cattle, for processing cattle, and so on. So that has to be subtracted from the 26 jobs.

One community might gain, but other communities around may well lose. And in fact in a province like Alberta, or even Saskatchewan or Manitoba, you could actually get a net reduction in rural diversification and rural employment. You can see several new ethanol plants out there, but you don't see what's missing and what has been reduced.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

But it seems to me—and I'm not an economist here, so far be it from me to disagree with you—that the example we have discovered in Alberta is exactly the opposite of that. When you have this kind of diversification into rural Alberta, as we've seen with the oil sands—and your argument is much the same as that of those who were opposed to the subsidization and the development to the oil sands 15 years ago—it seems to me that every time we add more industries into these communities, we end up with a spinoff of more jobs and higher wages and, yes, higher prices for farmland and other lands.

But from my perception, what I'm hearing from you is that you're talking about it in a vacuum. Given the example that we've seen within Alberta, especially rural Alberta, the entire economy.... In my area, communities like St. Paul and Glendon are communities where there wasn't a really viable industry, other than agriculture, for many years. The oil patch comes along, and all of a sudden the average income goes up. The spinoffs with the tradesmen, the plumbers, the electricians, and the journeymen go up. It seems to me that the average income and the average standard of living when you do this actually increase. Alberta is a prime example of that.

[Dr. Kurt Klein]

I agree. Certainly I think the oil industry is different. The studies I'm looking at are out of Iowa, where they have more ethanol plants than anywhere else. For rural development industries, in certain towns like Albert Lea, Minnesota, and so on, where there is an ethanol plant, there's been an increase in employment. But for the surrounding ones, it hasn't increased to the same extent as some of the proponents have been mentioning. There is an increase, but it's modest. For example, in Iowa the pig industry is starting to be reduced. We have not studied that in Canada, but we have studied it in Iowa. All I'm saying is that it's a modest improvement, if that.

[Brian Storseth, Conservative, Westlock—St. Paul, AB]

Thank you, Dr. Klein.

I want to start off by saying that this committee and every member of this committee strongly wants to find the path forward for our cattle and our hog sectors, which are being devastated at this point in time. They're being devastated for several reasons. High feed prices are not the only reason, and I know you know that. You're not saying that they are.

When you talk about Iowa and you talk about politics and you talk about George Bush's foreign policy, the fact of the matter is the United States of America's largest net import of oil is from Canada. I tend to disagree with the Middle East thing a little bit.

Let's talk about Iowa, since you're talking about it right now. Talking politics, there isn't a politician—and you mentioned George Bush's plan to go forward in the state of the union message—who wants to win Iowa who would ever talk about taking away this industry from Iowa. It is something the people of Iowa and the people of the midwestern United States are very strongly protective of, because they see it as being hugely beneficial to their communities and to their economic benefit and their standard of living as a whole.

Obviously that's another side of this, and I think we should look into it a little bit more. But I think and I believe that if we act responsibly with this industry and we move forward with this, it could be a huge contributor to rural development in Canada, in places like Manitoba and Saskatchewan, where they haven't experienced the spinoffs and economic wealth that we have in Alberta.

I appreciate you coming out and having this conversation with us today.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Storseth. Time has expired.

Mr. Atamanenko is next. I appreciate that he is here. He is not feeling well, but he has made it in to soldier on, just as the rest of us have to after spending all night in the Commons in debate.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

When you're young, anything's possible.

I understand and I appreciate all of the discussion. I'm trying to grasp what's happening, and my understanding is that this industry has huge potential benefit for farmers. However, this is an environmental bill. We haven't talked a lot about the impact to the environment or actually to food of a potential acceleration of the biofuels industry in Canada, and I think we should.

We're here, we're the agriculture committee. We want to do the best for farmers, but at the same time we want to do what's right, not only for our country, but for the world. So I'd like to quote from a few articles and I'd just like your comments. Hopefully we'll have some time for that.

An article by H. Josef Hebert from the Associated Press in Washington states:

The widespread use of ethanol from corn could result in nearly twice the greenhouse gas emissions as the gasoline it would replace because of expected land-use changes, researchers concluded Thursday. The study challenges the rush to biofuels as a response to global warming.

So the question I think we have to ask ourselves is why are we doing this. If we're doing this to give farmers a better deal, then probably by and large and hopefully we can.... It's not that good for cattle and pork producers, but overall for the grain and oilseeds it's probably a good thing.

However, this study released Thursday by researchers affiliated with Princeton University and a number of institutions maintains that the previous analysis, which counted the carbon benefits for biofuels, did not count the whole land-use aspect. The study said that after taking into account expected worldwide land-use changes, corn-based ethanol, instead of reducing greenhouse gases by 20%, will increase it by 93% compared to using gasoline over a 30-year period. Biofuels from switchgrass, if they replace crop lands and other carbon-absorbing lands, would result in 50% more greenhouse emissions, the researchers concluded. That's one aspect studies are showing.

In the wake of new studies, a group of ten of the United States' most eminent ecologists and environmental biologists sent a letter to President Bush and the Speaker of the House, Nancy Pelosi, urging a reform of biofuel policies. And they said, I quote, “We write to call your attention to recent research indicating that many anticipated biofuels will actually exacerbate global warming”.

Just as an aside here, I'm from the teaching profession, and in teaching we had all these waves. There was some innovative scheme, and people would introduce it. By the time they found out it was no good, it would be happening—and I'm thinking of the open-school situation—and all of sudden we'd be re-inventing the wheel.

So if the Americans are seeing that perhaps this thrust they're pushing for is not the panacea they said, should we then not be studying this some more and maybe slowing down our introduction?

Dr. Klein, could I have your comments?

[Dr. Kurt Klein]

Yes, there certainly are a number of negative environmental consequences from crop-based biofuels. There's no question about that. The higher prices are stimulating more use of fertilizers and chemicals of various kinds, they're bringing in marginal pasturelands and so on for corn production, and they're stimulating monoculture. There are a number of unfortunate environmental consequences. There is the cutting down of trees in Indonesia and Malaysia to plant more palm trees to get palm oil for the biodiesel industry. There is a huge number of negative environmental consequences.

Certainly the greenhouse gas savings on corn-based ethanol and wheat-based ethanol are rather small. Even with biodiesel, where the savings are much greater, in fact studies show that if greenhouse gas reduction is your real goal, there are way cheaper ways of reducing greenhouse gas than using crops and oilseeds to produce fuel for our automobiles.

Studies show that it costs between $200 and $1,200 per tonne of greenhouse gas reduction. So if greenhouse gas reduction is your real primary reason for doing this, yes, you can get a little, but it's extremely expensive. As an economist, I can find all kinds of cheaper ways for $20 or $30 a tonne rather than $500 or $1,200 a tonne.

So I think greenhouse gas reduction is not a good reason for doing this. I think that energy security is not a good reason for doing this. And even in the U.S., where they are much more aware of this, they will not achieve anywhere near energy security by doing this. They sometimes say it's a piece of the puzzle, but it's a very, very insignificant piece of the puzzle.

So I think the arguments have to rest on it as being a farm program, and I think it's very effective as a farm program. Certainly the National Corn Growers Association in the United States, along with the American Farm Bureau, are very powerful and have been instrumental in pushing this forward. In Canada we have the grains and oilseeds groups, of course, also lobbying on this.

But I think it's a farm program that's going to be very expensive for Canadian society. We'll gain some benefits, but I think that for the same benefits we could do it a lot more cheaply.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Is there any time for our other guest to comment, Mr. Chair?

[JoAnne Buth]

Thanks very much for that. This is something we've looked at closely, in terms of the environment. There's a lot of material out there and a lot of reports coming out that will use rapeseed production in Europe as the model for the impact on the environment.

I think we have to be really careful looking at those studies and realize that canola production in western Canada is different from rapeseed production in Europe. There's no doubt that we need full life-cycle analysis on all of these crops that are going into biofuels, but canola production in Canada doesn't use irrigation, there is less fertilizer used, and there is less chemical used. So when you look at a life-cycle analysis for Canadian canola, it comes out quite differently than the European models.

[The Chair, Conservative, James Bezan]

A very quick response, Mr. Toews.

[Travis Toews]

I really don't feel qualified to comment on the environmental effects. I've seen results of studies that point in various directions.

Again, I'll just reiterate that our real concern is in a potential for a year of shortage in North America. We feel the cattle industry could lose significant infrastructure if the biofuels industry expands at a rate where the supply of feed grains cannot keep up.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Easter. We're down to the five-minute rounds.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks, Mr. Chair, and thanks, folks, for coming.

Dr. Klein, you said in your remarks that whether it's the policy in the U.S. or the policy in Canada, a big blow has been dealt to beef and hogs. I might mention to you that we did have an emergency debate in the House of Commons last night. I guess the tragic and sad commentary on it is that the government had an opportunity to respond and act and has failed to do so, has absolutely failed to do so as of yet. Having reviewed some of the remarks made last night in the debate, I can only say that I see the government's action basically as cruel and unusual punishment on the beef and hog industry.

It really doesn't matter whether it's a U.S. subsidy or a Canadian subsidy; here we are talking about subsidies at the WTO, but for some reason I've been sitting here thinking that a subsidy to an auxiliary industry that is also having the impact of pushing costs up is also having consequences for the farming industry.

That's what we're seeing with ethanol and biodiesel. We support the ethanol and biodiesel policies; however, if governments, either foreign or domestic, are causing unusual circumstances and negative impacts on an industry, I do think the government has a responsibility to act. So perhaps I can get you to comment on that.

Second, at the political level, I think at the national level, we tend to combine the two, ethanol and biodiesel. There are pros and cons to both. I personally think our greatest opportunity is in biodiesel, but is it a problem? There's no question, if you look at Minnesota, that the ethanol industry has really positively impacted on rural development thus far.

What are your thoughts on this? Instead of combining the two, maybe we should be emphasizing one more than the other.

My view with regard to the canola industry--and I could be wrong on this--is that our going into biodiesel production with canola could in fact increase the source of feed supply for the livestock and hog industry because there will be more bio-product than would otherwise be the case. Now, I don't know if that's right or wrong, but I see Dr. Klein shaking his head.

Give me your thoughts on those comments.

[JoAnne Buth]

We only comment on biodiesel. I think the ethanol and biodiesel issue is something you have to lead, to some extent, along with the universities, etc.

There is a lot of negative information out there on biofuels. We agree that you need to look at the feedstock separately. That's why we're so keen on canola biodiesel, because we see the opportunities there. We don't see a tremendous impact on land use. We see an increase in rotations, yes, but there are also increased opportunities for increased yield. So we don't see a lot of the negative impact there.

You made a comment about canola meal being a potential. There are issues with canola meal. It can be in a ration for dairy, for poultry, and for beef, but there are downsides to it in terms of the energy level of canola meal. We have a program looking at trying to increase energy levels in canola meal so that we can increase inclusion in the diets for different species of animals.

So there is some opportunity there, but I wouldn't say it's a replacement for the feed grains, especially for the animal industry.

[The Chair, Conservative, James Bezan]

Dr. Klein, there's a bit of time left.

[Dr. Kurt Klein]

There are a number of issues there, Mr. Easter. Thank you for the comment.

What we find in our studies is that the biodiesel industry, of course, is much more expensive to establish than the corn-based ethanol, and the cellulosic ethanol is even more expensive. In the economic models we've been working on, along with colleagues at other universities in the midwest United States, biodiesel and cellulosic-derived ethanol never come into the optimal solutions. You can make them come in, but by pouring in a lot more money. They just don't come in. Of course the reason is that soybean oil and canola oil just become very expensive. When you just take a little bit off the market, it becomes very expensive and becomes very expensive to run a plant on that basis.

As for the feeds, there is distiller's dried grain, which is a byproduct of the corn-based and wheat-based ethanol. The products that come from wheat and from corn are two different products. But there are a number of nutritional issues involved with that. I don't care to go through that here today, and certainly I'm not a nutritionist, but I've spoken with many, and the fact of the matter is that a lot of the DDGs, the distiller's dried grains, that are being produced in the United States today are being used for fuel to power the ethanol plants, because it's cheaper than natural gas, or simply dumped into landfills. It's not being used for feed because of a lot of the feeding problems that are associated with it.

They anticipate in the future that some of these problems will be worked out, but it's certainly not a panacea. It's a high-protein feed, but it's not the kind of feed that is really required for much of livestock. It's not used for monogastrics; and for beef, we need the energy, we don't need the protein, generally.

[The Chair, Conservative, James Bezan]

Thank you, Dr. Klein.

Mrs. Skelton, the floor is yours.

[Carol Skelton, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much.

Ms. Buth, I would like to ask you a question. In Dr. Klein's presentation, he talked about biodiesel or bioethanol not helping rural economies that much. In your presentation—and please correct me if I'm wrong—you said $1 going in gives $2 back to the rural economy. Can you explain that further and from your point of view?

[JoAnne Buth]

The $1 to $2 is the resulting activity that centres around building biodiesel plants and crushing plants. So there's an increase in jobs in terms of the build, and yes, that's for an 18- to 24-month period, but there is ongoing employment in terms of crush plants and also biodiesel plants.

It's different from wheat, where you actually have to increase your crush capacity. There are jobs, and there are the resulting ongoing services that are required for a crush plant and also a biodiesel plant. So that's part of it.

We did an economic analysis that looked at the impact just to do the construction, and then the impact further along. There's no doubt that there is a reduction in that after the plant is built, but there is ongoing economic activity after the plant is built in terms of jobs, in terms of inputs, and in terms of crop production.

[Carol Skelton, Conservative, Saskatoon—Rosetown—Biggar, SK]

Well, I know it's a wonderful cooking oil.

Mr. Toews, in terms of Pound-Maker, in Lanigan, Saskatchewan, when you toured the country with your committee, can you explain to the committee here how Pound-Maker works its feedlot, its farm, and its ethanol plant all together and what it does with the bioproducts and everything?

[Travis Toews]

Okay, I'll do my best to explain it.

Pound-Maker is a combination ethanol producer and feedlot. In the feedlot, they do feed the byproduct, which is distiller's grain, as a part of their ration in the industry. As Dr. Klein suggested, distiller's grain is a feedstuff that can be used by the livestock sectors. The reality, though, is that there is a three-to-one loss for product fed into the process versus product that results from the process.

There will be some regional opportunities for the livestock sector where it's likely, perhaps, a plant may be built. Overall, from a total industry perspective, though, we are looking at a net loss to the feed supply, and certainly a significant competitor to that feed supply as well.