Biofuels – Agricultural Issues and Outlook: Some Comments Kurt Klein University of Lethbridge Lethbridge, Alberta NAAMIC Workshop IV: Contemporary Drivers of Integration Cancun, Mexico June, 2007

Recent Headlines in Canada Fuel Ethanol and Food Supply Join us for this unique networking symposium on one of today's hottest topics -- biofuels Ottawa's 5% biofuel program backed Biofuel credentials questioned as Canada hikes up ethanol targets Canada Falling Behind U.S. Ethanol Industry Alberta Boosts Homegrown Renewable Fuels

Objectives of Biofuel Policy Reduce greenhouse gas emissions Enhance and stabilize farm incomes Rural development Energy security

Reducing Greenhouse Gas Emissions Modern agricultural practices use fossil fuels Fuel also needed to process biofuels Life cycle studies show: 20-40% ↓ from cereal-based ethanol 70-90% ↓ with cellulosic ethanol 40-60% ↓ with canola for biodiesel

Achieving GHG Reductions Through Biofuel Use is Expensive EU studies: Abatement costs via ethanol $286 to $1429 per tonne of CO2 equivalent. Abatement costs via most economic means $30 per tonne of CO2 equivalent.

Negative Environmental Consequences Shifting marginal land into crops Increased fertilizer and chemical use More nutrient leaching

Negative Environmental Consequences More monoculture and soil erosion Increased demand for water 1 litre of ethanol requires 4-8 litres of water Deforestation Habitat losses could endanger several animal species

Agriculture --Grain Prices Rising Cereal Grains and Oilseeds May 2007 Price May 2006 Corn, CBOT future, next-nearest month, in C$ per bushel C$4.05 (↑ 54%) C$2.63 Soybeans, CBOT future, next-nearest month, in C$ per bushel C$8.27 (↑ 24%) C$6.66 Oats, CBOT future, next-nearest month, in C$ per bushel C$2.82 (↑ 35%) C$2.08 Barley, WCE future, next-nearest month, C$ per tonne C$181.00 (↑ 51%) C$120.00 Feed Wheat, WCE future, next-nearest month, C$ per tonne C$158.00 (↑ 36%) C$116.00 Higher input costs for: Beef Dairy Hogs Poultry

Will Higher Grain Prices Lead to Improved Net Farm Incomes? Gross income ≠ net income Capitalization of higher grain prices into higher prices for inputs: Fertilizer and machinery prices ↑ Farm land prices ↑ John Deere and Agrium share prices have almost doubled since last summer. Winners are land owners Not tenants or farm workers

Crop Land Prices Rising Feb. 2007 - $6,010/Ac Jan. 2007 - $5,250/Ac Oct. 2006 - $3,800/Ac

Cellulose for Ethanol Much more energy efficient 1.3 from cereals 16 from cellulosic biomass Iogen awarded US$80 million by US Dept. of Energy (Feb. 2007) to establish a cellulosic ethanol plant in Idaho March 19 budget item

Logistical and Cost Problems Harvest, collection, storage, distribution 100 million litre per year plant requires: 100 truckloads per day, each hauling 32 large round bales Costs of harvesting, storing and transporting $0.40/litre of ethanol.

Biodiesel – Opportunities and Obstacles Environmental benefits: Cuts exhaust emissions, particulates, odour Reduces GHG emissions 40-60%. A lot of interest: Canola Council of Canada, farm groups, etc.

Cost, Technical Problems for Biodiesel Higher cost of canola as feedstock Price increased 49% since last year Quality, cost and consumer issues Animal fats, used cooking oils unlikely to be accepted by major fuel distributors Flow problems in cold weather

Biofuels vs. Livestock Feed Higher grain prices Plants currently under construction in the US could more than double present capacity Grain prices may rise further Ethanol production likely ↑ even if oil prices ↓ and existing plants struggle financially Need to cover only variable costs Prospects good for grain farmers … but not for livestock production

Distiller’s Dried Grains for Livestock 100 kg of corn fermented in a dry-grind ethanol plant yields: 36 litres ethanol, 32 kg DDGs, 32 kg CO2 DDGs: high protein content but also problems Flowability Monogastrics Lysine digestibility Nutrient variability

What about Rural Development? Local employment opportunities Few permanent jobs created: Iowa: 35 new jobs at 190 million litre plant Lloydminster: 26 new jobs for 130 ml/year New biofuel plants may reduce employment and economic activity elsewhere: ↑ local wage rates ↓ livestock production, processing, transport Net gains in employment and economic activity usually less than gross gains

Conclusions Biofuel industry is expanding rapidly (with govt.) Likely to severely hurt livestock sectors and raise prices for food Many environmental negatives