Ethanol's burden on N.C.'s livestock

GARNER -- It's no secret that the United States is in the midst of an energy crisis and is working to reduce its dependence on traditional fossil fuels.

A well-intentioned step to do this was the congressional mandate to produce ethanol, which can be used in combination with conventional motor fuels to help reduce the demand for oil. The problem with the ethanol mandate is that it has helped triple corn prices in the United States, in part because of government subsidies.

Rising corn prices have been a damaging blow for the poultry and pork industries in North Carolina. Corn is the primary ingredient in feed for farm animals, including chicken, hogs and turkeys. At Butterball, we have seen our feed costs increase more than $200 million in the past year.

We are not alone. This problem is shared by all the companies in our industry. The negative result is that companies are reducing staff, increasing prices, halting plans for future growth and, in some cases, moving production overseas. Some of this rising cost expense has to get passed on to the consumer in the form of higher prices.

Why? There is a ripple effect. It starts with ethanol mandates and subsidies.

Ethanol production subsidies have been around since 1978, when they amounted to $.40 per gallon paid to a blender that mixed it with gasoline. These subsidies were revised again in 1980. In 2005, legislation raised the subsidy to $.51 per gallon and also mandated that a minimum of 7.5 billion gallons of ethanol be used in fuel blends by 2015. Today the mandate stands at 9 billion gallons, with an updated requirement to double to 15 billion gallons by 2015 and 36 billion gallons by 2022.

That much capacity can use up to 5 billion bushels of corn. This year's estimated U.S. corn crop is 12.4 billion bushels.

The rapid increase in ethanol production, and the corn it is using, causes severe disruptions in North Carolina agriculture, not limited to corn. Supplies and prices of soybeans have been affected, further increasing feed costs and the economic impact. With corn more valuable, more is being planted, which means there is less farmland for wheat and soybeans too. Therefore, the costs of wheat and soybeans have increased due to the lack of supply. This issue has a direct impact on the North Carolina economy.

Other factors are also impacting corn prices and demand, including growth in China and India, higher oil prices, drought and other issues. However unlike these factors, mandated ethanol production is something we can control to help bring food and fuel prices back into balance.

It takes about 11 pounds of feed to produce an average broiler chicken, 75 pounds for a turkey, 154 pounds per egg-laying chicken per year and 800 pounds for a hog. FarmEcon LLC estimates that the added feed cost due to the renewable fuel standard and ethanol tax credits is about $0.52 per broiler, $3.37 per turkey, $6.85 per layer and $38.37 per hog.

North Carolina is a leading producer of chickens, eggs, turkeys and hogs. Livestock producers here have experienced a total increase in grain costs of $1.2 billion. Further, the total economic effect of these costs, including lost jobs and higher consumer prices, exceeds $2.2 billion in North Carolina.

This is a significant economic hurdle for not only livestock producers but also for state residents at a time when we are also dealing with other serious economic issues.

While the ethanol mandate was well intentioned, it was poorly implemented. It has created a serious concern with food costs and it needs to be re-examined. Taxpayers are funding government subsidies for ethanol that are causing increased food production costs. Taxpayers are also paying extra at grocery store. At the same time, business growth and job creation are being halted because of an avalanche of rising costs.

The solution is to reverse this mistake and reduce ethanol mandates to help bring commodities back into balance. Texas Gov. Rick Perry has asked the federal Environmental Protection Agency on behalf of his state to waive a portion of the current ethanol mandate. He calls the mandates harmful to the economy of Texas and notes that his state plays a significant role feeding and fueling the nation. Connecticut Gov. M. Jodi Rell also requested help from President Bush and Congress in a May 1 letter.

With leadership from our elected officials, we can work with EPA to find a responsible balance between food and fuel production.

(Keith Shoemaker is CEO of Butterball, LLC, which has moved its headquarters to Garner.)