Livestock, poultry industries call for VEETC's end, tweaks to RFS

By Holly Jessen | September 14, 2011

Representatives from the livestock, dairy and poultry industries testified Sept. 14 about feed availability—or as one witness said, feed unavailability—in front of a subcommittee of the U.S. House Committee on Agriculture. Although comments varied, the majority pointed to the ethanol industry as a main factor in rising feed prices and called on Congress to end government subsidies, particularly for corn ethanol, while also providing a mechanism for a renewable fuel standard (RFS) waiver and altering Conservation Reserve Program policies to open up more cropland for planting.

The Subcommittee on Livestock, Dairy and Poultry heard testimony from six witnesses, five of which represented the livestock or poultry industry. A fifth witness, Steven Roger Meyer, is the president of Paragon Economics, a livestock and grain marketing and economic advisory company.

While acknowledging that there are a number of things that have affected the profitability of the livestock and poultry industries, all six witnesses brought up the growth of the ethanol industry as a significant factor. For example, National Pork Producers Council representative Randy Spronk pointed to the overall worldwide financial crisis, value of the U.S. dollar and H1N1 flu and its associated trade impacts as contributing factors. The ethanol industry, however, held center stage. “The effects of drastic changes in grain markets that are in large measure driven by the increase in demand for corn from the ethanol industry have had the most significant impact on the pork industry,” he said.

High feed prices may be the result of weather, high energy prices, speculation in feed markets or demand for feed from other countries, said Eric Erba, senior vice president of administrative affairs for California Dairies Inc. However, federal support of the ethanol industry has been a conspicuous disruption on the demand side. “It is economically illogical to suggest that almost half of the supply of any commodity can be removed from the market by a relatively new, large and defined demand source without any impact on price,” he said. “It just doesn’t make sense.” He pointed to studies that put the impact of the federal ethanol program on corn prices at 20 to 40 percent.

Several speakers clarified insisted that they aren’t against ethanol, particularly cellulosic ethanol, but rather are opposed to the government subsidization of an industry they felt was mature enough to stand on its own. “Subsidized ethanol has meant record high corn prices, record high costs of production for meat and poultry, resulting lower per capita meat and poultry output and, finally, record high meat prices,” Meyer said. Corn exports and food and industrial uses other than for ethanol have held steady since 2000 while corn for ethanol has increased dramatically, he added. “Since 2005, the use of corn for feed has fallen by 20 percent.”

Feed represents more than 70 percent of the cost to produce meat, poultry, dairy and eggs, said Philip Greene, vice president of Foster Commodities, a poultry farm company. “Anything—I repeat, anything—that affects the cost of producing feed for livestock and poultry, directly impacts the cost of animals to the processor, meat, dairy and eggs to the retailer, and ultimately, the cost of food to the consumer,” he said.

Several of the witnesses spoke favorably about the end of the Volumetric Ethanol Excise Tax Credit, which is expected at the end of the year. Ted Seger, president of Farbest Foods Inc., who testified on behalf of the National Turkey Federation, said letting the blender’s credit expire would be good government and would help with corn prices. “It has been clear, from the minute the government chose to subsidize corn as an energy source, livestock and poultry interests have taken a back seat to an ethanol industry,” he said.

Four of the six witnesses suggested a safety valve or waiver to the RFS in the event of short-term crop shortages. Meyer urged the committee to put an automatic waiver of the RFS in place, should there be a pending crop failure as well as relatively low gasoline and oil prices. He suggested giving the Secretary of Agriculture authority in the matter because it’s an important issue to the meat and poultry industries. “While hindering profitability almost from its inception, the RFS did not begin crippling the turkey industry until 2008,” Seger said. “That year was a perfect example of what happens when you have a tight corn supply based in large part on a federal mandate. It led to a downsizing of turkey production to a level that is not likely to change significantly for several years—roughly 11 percent.”

In addition, some witnesses pointed to the need for “significant reinvention” in CRP policies. Although CRP was intended to take environmentally fragile land out of production for preservation reasons, the program now simply provides checks to farmers for idling land—little more than a government-paid annuity, Greene said. He advocated for an early opt-out option without a penalty for acres moved back into production. “For more than a decade, USDA has turned either a deaf ear or flatly refused to exercise this administrative option open to the Secretary,” Greene said.

Michael Welch, president and CEO of Harrison Poultry, spoke on behalf of the National Chicken Council. On the subject of distillers grains Welch said that the co-product of ethanol production is low in energy and high in fiber, making it competitive with soybean meal more than corn. “The broiler industry does use some DDGs [distillers dried grains] but it is not a preferred ingredient due to the nature of its composition,” he said. “Inclusion of DDGs in a broiler feed ration is usually limited to 5 percent of the total ration.”

Spronk also said there were several issues with feeding DDGS [distillers dried grains with solubles] to pigs, including inconstancies in the product and the possible presence of mycotoxins, which can be detrimental to pig performance. “DDGS are far more useful in diets for beef and dairy cattle than they are for pork and poultry,” he said.

Read about the ethanol industry's reaction to the hearing here.