If evidence was ever needed of what a crazy world we live in, then just consider the American ethanol boom.
It comes from the United States' fear of being held to ransom by Arab oil producers. And that comes from increasing anti-American sentiment in the Arab world because of the Iraq invasion and other blunderings, as well as the insidious creep of American culture.
So, at the government's urging – not to mention the incentive of massive tax credits – US farmers are diverting corn from stock feed to ethanol, a petrol additive.
Ethanol plants are burgeoning – up from 61 in 2002 to 134 today, with another 77 under construction, and production is targeted to rise from 7.2 million gallons now to 36 billion gallons by 2022.
Ignored in the rush is the environmental and economic cost of making ethanol – six times more energy is required to produce ethanol than the energy that is actually in it. That's not just crazy, it's stupid.
An alternative is to use sugar cane, which yields seven crops before replanting, against corn's one, and uses one litre of fossil fuel to make seven litres of ethanol. But imports from Brazil are subject to heavy tariffs.
In the US and Canada – which is also being caught up in the madness – little arable land is left that is not already being used. So cattle, beef and poultry farmers who feed corn and other grains to their animals (unlike in New Zealand, few farm animals are grass-fed) are facing huge price increases.
The price of corn is rising so rapidly that it is being mentioned by analysts in the same breath as the soaring gold price. Other grains are being dragged along as growers change their options.
Consequently, grocery prices are rocketing. Meat prices (with one exception) are going through the roof. And corn is used as a staple in a wide range of foods, from margarine to licorice, and is also in other products, from batteries to insecticides. In the US, corn is in a quarter of all goods sold in supermarkets.
What does this mean to New Zealand? You would think that, if meat prices are rising in one of our biggest markets, beef farmers should be walking around with big grins on their faces and bulging wallets in their pockets.
Maybe those days will come. But not for a while, the BNZ says.
The trouble is, beef is the exception to the boom. Prices have risen in US supermarkets, but not enough to make up for increased feed costs. In fact, there's a glut of beef in the US and it isn't likely to go away for a few years, the bank says in a pessimistic report.
The glut comes from US cattle farmers frustrated at the rising cost of feed and who are opting to downsize or to leave the industry. Recent droughts in key beef-producing states have exacerbated the situation. Further rises in corn prices are expected this year and next, and the bank is predicting the cattle kill to remain high.
About half of our beef production goes to the US to end up in hamburgers. And that's also where most of the increased domestic beef kill is going. We're being squeezed out.
Our prime beef has lately found a welcoming home in Japan, Korea and Taiwan, markets that have been closed to the US because of disease fears. But eventually, the US will be allowed back in and our market will shrink.
That should lighten the pressure on the US home market, possibly allowing us in, but the BNZ is sceptical. It says herd liquidations have traditionally lasted six or seven years and there's no reason why this should not be any different. It even says some pessimistic commentators are predicting it will drag on for ever.
To add to the gloom, the bank points out that an Australian task force has recommended mandatory targets for biofuel production. If the US scenario is repeated, Australian beef could flood world markets and add to our misery.
Eventually, the sun will shine on New Zealand beef producers. When the US, and possibly the Australian, bloodlust has been slaked, there will be less beef available to satisfy those big American appetites. If we have any beef farmers left – if they haven't all converted to dairying or planted their hills in grapes or olives – they should experience a surge in demand.
It's worth pointing out, though I'm trying not to be too sanctimonious about it, that in our own biofuel search the Government is insisting the sources be sustainable and not adversely affect food supplies. Leading contenders are tallow for diesel and dairy whey for ethanol. Promising research is under way into making ethanol from scrap wood and diesel from algae.
- © Fairfax NZ News
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