Biofuel surge bonus for NZ

Reuters

BIOFUEL BONUS: Earnings from agriculture exports, which produce 65 percent of New Zealand's income, are likely to be incidental beneficiaries of a lift in US corn production for biofuel.

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The New Zealand economy could be in for a timely boost, thanks to United States President Barack Obama.

Earnings from agriculture exports, which produce 65 per cent of New Zealand's income, are likely to be incidental beneficiaries of a lift in US corn production for biofuel.

Mr Obama has allocated US$786.5 million (NZ$1.3 billion) to renewable fuel projects and formed a taskforce to increase biofuel use.

US commentators are predicting an upsurge in corn being grown for biofuel. Already, 25 per cent of American corn crops is going to biofuel distillers.

The aim is to reduce US dependency on imported oil but a side-effect is a rise in world food prices. Reports by United Nations and International Monetary Fund experts say the US biofuel surge was responsible for 25 per cent of the sharp rises in world food prices over the past two years.

Those rises benefited New Zealand dairy farmers as they helped add impetus to already-increasing commodity prices for their milk powder and butter.

This time, sheep and beef farmers are also likely to benefit.

Meat & Wool New Zealand market development general manager Craig Finch said yesterday an increase in corn crops would have two effects on US agriculture.

"There will be less land available for other uses and with more corn going into biofuel, less feed available for their dairy, beef, chicken and pork farmers. Corn is the base feed for these industries and with less available prices will rise. To recover these increased costs, they will have to charge more for their produce."

This lift in prices would also be carried over to imports such as New Zealand's grinding beef, which was performing well in the recession as diners down-scaled from restaurant steak dinners to fast-food hamburgers.

Beef returns for farmers were up 22 per cent to $5420 a tonne, mainly because of the fall in the Kiwi dollar but also because of increased demand in the US. American producers of prime beef were worse off, said to be losing US$200 (NZ$338) a cattle beast, adding up to more than US$100 million (NZ$169 million) a week as feedlots closed.

Mr Finch said the added pressure on corn feed prices from increased biofuel growth would aggravate that. "They're building up big backlogs of meat that will be very hard to get rid of."

By the middle of next year, when the US economy was picked to start improving, there would be a shortage of beef, he said. "Then prices will go up. This is not a negative for us."

As the price of rival meats rose, lamb began to look more attractive as an alternative. Though firmly in the premium price range, lamb was selling well in Britain and Europe despite the recession and returns were up 27 per cent to $8670 a tonne.

This was mainly because of reduced supplies, caused by droughts in New Zealand and Australia and by subsidy cuts in Britain. "Prices were high anyway, but they've gone higher," he said.

- © Fairfax NZ News