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    Livestock, Poultry Producers Tackle Tax Credit

  • Industry News July 19, 2010
    The nation’s largest livestock and poultry trade associations asked the Senate leadership to allow a 30-year-old tax credit and a protective tariff for ethanol to expire as scheduled at the end of the year. The request was made in a letter signed by the American Meat Institute, the National Turkey Federation, the National Chicken Council, the National Cattlemen’s Beef Association, the National Pork Producer’s Council, and the National Meat Association.

    “Although we support the need to advance renewable and alternative sources of energy, we strongly believe it is time that the mature corn-based ethanol industry operate on a level playing field with other commodities that rely on corn as their major input,” the groups said in its letter. “Favoring one segment of agriculture at the expense of another does not benefit agriculture as a whole or the consumers that ultimately purchase our products.”

    The Senate Finance Committee now is considering whether to extend the ethanol blender’s credit and the tariff on imported ethanol. Both expire at the end of 2010.

    The groups noted their serious concerns over the negative economic effects on animal agriculture that government support for corn-ethanol has had, specifically the Volumetric Ethanol Excise Tax Credit (VEETC) and the import tariff on foreign ethanol.

    “The blender’s tax credit, coupled with the import tariff on foreign ethanol, has distorted the corn market, increased the cost of feeding animals, and squeezed production margins, resulting in job losses and bankruptcies in rural communities across America,” the letter read.

    The groups pointed out that a September 2008 report by the Congressional Research Service (CRS) stated that the dramatic increase in livestock production costs were attributed to higher costs for feed. The CRS report said that “the main driver was feed, which may account for 60 percent to 70 percent of total livestock production costs in any given year.”

    Between 2005 and 2008, corn prices quadrupled, reaching a record high of more than $8 a bushel, a pattern that is unsustainable for the industries, the groups said.

    “There is no safety net to protect against the volatility in the commodity markets, forcing all industries to pay higher prices for input costs due to the fluctuations in the corn market,” the groups wrote. “While there has been some recent relief in corn prices, current market prices are still 50 percent higher relative to pre-RFS conditions.”

    The groups said animal agriculture has suffered serious economic hardship. The turkey industry has endured the deepest cutbacks of any in animal agriculture—a decrease in turkeys raised of more than 6 percent since 2007 levels and a near 9 percent reduction from 2008 levels—to adjust to these increased input costs. More importantly, the turkey industry eliminated nearly 3,000 jobs vital to rural America in 2008 and 2009 alone.

    The U.S. pork industry endured the two most challenging years in the industry’s history in 2008 and 2009. Total losses for the industry amounted to nearly $6 billion, and average farrow-to-finish operations lost nearly $23 for each animal marketed from October 2007 through February 2010. This financial disaster occurred despite near-record hog prices in 2008. The cause of the losses was higher production costs driven primarily by higher corn and soybean prices. Even now, projected production costs for 2010 are 25 percent higher than the costs that prevailed from 2000 through 2006.

    The cattle-feeding sector of the beef industry lost a record $7 billion in equity from December 2007 to February 2010 because of high feed costs and economic factors that have negatively affected beef demand.

    The broiler industry has experienced a cumulative additional cost of nearly $15 billion, as of April 2010, since corn prices began their rise in the fall of 2006. This additional cost does not include the higher cost of other feed ingredients, such as soybean meal, whose prices tend to move in tandem with corn. Accordingly, broiler companies have suffered reduced profitability.

    The letter noted the Congressional Budget Office (CBO) report released recently, titled “Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals,” found that producers of ethanol made from corn or similar feedstocks receive 73 cents to provide an amount of biofuel with the energy equivalent to that in one gallon of gasoline. The report also stated that the cost to taxpayers of using ethanol to reduce gasoline consumption by one gallon was $1.78.

    The groups reminded the committee that animal agriculture is united in its support for energy independence and the development of the renewable fuels industry. “However, 30 years of support has created a mature corn ethanol industry that now needs to compete fairly in the marketplace and allow for the next generation of renewable fuels to grow,” the letter said.