Issue

The Australian Lot Feeders’ Association (ALFA) is concerned that Federal and State Government assistance for the unviable grain based ethanol industry distorts grain markets, increases food prices and threatens the internationally competitive and profitable rural businesses that compete with the ethanol sector for grain.

Background

• There are approximately 450 accredited feedlots in Australia located in areas that are in close proximity to cattle and grain supplies.Feed grains represent the single biggest cost in a kilo of beef, pork, dairy and chicken.  In a normal season, 80% of Australia’s east coast grain production is consumed by these intensive livestock industries with the feedlot sector the largest user with 3.7 million tonnes.  During drought periods this percentage increases greatly as exports diminish.These industries do not receive Government assistance yet directly compete with the Government assisted ethanol sector for grain.
• The arguments in favor of increasing ethanol production are that it will improve 1) fuel security and trade, 2) regional development and 3) the environment. These arguments are flawed; 

1.    The fuel security argument is flawed because the majority of Australia’s ethanol is sourced from food crops (eg wheat, sugar cane and sorghum), crop yields vary in line with Australia’s erratic climate, ethanol represents less than 10% of petrol consumption, and Australia does not have a fuel security issue.  Grain derived biofuels can only hope to replace a negligible portion of Australia’s transport fuel demands without significantly impacting upon food supplies. This is the same for the world’s largest ethanol producer, the US, where 100% of its corn crop (the world’s largest) if diverted to ethanol would only meet 7% of its fuel needs. Mandates of ethanol content in fuel aggravate this situation because they create an inflexible demand for grain which is disconnected to supply.  Fuel security is also not an issue in Australia with the National Energy Security Assessment concluding that our overall fuel security position is ‘high’ to 2016 and ‘moderate’ to 2035. 

2.   The regional development argument is flawed because the jobs created by a Government assisted ethanol industry are few, extremely costly to taxpayers and more than offset by job losses in other more viable rural industries that compete with it for grain. There are currently only 3 ethanol plants in Australia with the industry receiving more Government assistance and protection per litre of ethanol produced than the US.  According to ABARE the taxpayer cost for each job created is around $546,000 per job per year.  Given that a feedlot using the same amount of grain as an ethanol plant alone contributes more than 2 times the number of jobs, a Government assisted ethanol industry may actually result in a net loss in employment due to unfair competition and rising costs. 

3.   The environmental argument is flawed because the life cycle emission benefits  compared to regular unleaded are negligible (the CSIRO states only 1-4%) and extremely costly to taxpayers (the Productivity Commission concludes $394-511 for every tonne of CO2-e reduced).  Given ethanol also has poorer fuel economy to regular unleaded petrol, more ethanol and hence emissions are released. 

• A Government assisted ethanol industry distorts markets, increases food prices and leads to food shortages. The World Bank stated that biofuels were responsible for 75% of the 140% increase in global food prices between 2002-08.  In 2010 approximately 40% of the US corn crop and over 60% of the EU rapeseed crop was converted to biofuels.  

•  Regardless of efficiency, no ethanol industry in the world is viable without significant Government support.  In 2010, the US Government provided $7.7 billion to its biofuels sector. The Australian Government has provided capital grants, $529 mill in fuel excise relief subsidies since 2003/04 and an effective tariff (5% plus excise) on imported ethanol. The NSW Government has in place a 6% mandate of ethanol content in fuel whilst all other state Governments have either indefinitely suspended or opposed the introduction of mandates due to concerns about supply and the costs outweighing the benefits.  First year economics suggests that such ‘infant industry’ type assistance results in complacency, inefficiency, moral hazard issues and further advocacy for increased support and protection. 

       What we are seeking 

•        ALFA seeks the removal of distortionary Government assistance and protection for grain based ethanol production so that the market (not Government) determines the price for grain.

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