LIFE AS AN IMPORTER

When making policy decisions or providing advice concerning the corn industry in Ontario, one would think the first step should be to ensure a firm understanding of the real situation.

The most important thing to recognize is that the grain corn industry in Ontario, almost unique among major Canadian grain and oilseed commodities, is a net importer and has been for over a decade. In that decade (1994/95 - 2004/05), total grain corn usage in Ontario has grown consistently from about 207 million bushels (mbu) annually to over 270 mbu per year. Industrial processing has expanded from 52 mbu per year to over 83 mbu now. Feed demand has increased from 129 m to 180 mbu per year. Classic economics would say that given an apparently robust and expanding demand, prices should be strong and entice more production. Hasn't happened. In that same time period, provincial grain corn production has averaged 206 mbu per year (with a maximum annual variance of only 30 mbu, usually much less) while acreage has shrunk by over 300,000 acres in the last five years alone. Prices have wobbled up and down averaging $3.45/bushel for the period, ranging $4.64 in 1995/96 to an estimated $2.70 for 2004/05, but generally trended lower with the lowest prices unfortunately being the most recent.

So, the first lessen to comprehend when making policy decisions concerning grain corn is that despite expanding demand, domestic acreage has shrunk and prices have trended lower. Obviously, provincial price is not determined by provincial demand and supply.

At the same time, imports of subsidized grain corn from the U.S. have increased. Imports averaged 35 mbu per year over the decade with a huge surge since the turn of the millenium to an average of 57 mbu per year over the last five years. Not coincidentally, the last five years are the same time period in which provincial grain corn acreage shrank the fastest and prices plummeted to their lowest point. Obviously, we import not only physical corn but also price. Moreover, the price imported has been insufficient to attract more corn production or even maintain previous acreage. Not so in either the U.S. or Quebec where despite these same relative prices and costs of production, corn acreage has expanded in each of the last five years; but that is another story.

Life as an importer is distinctly different than as an exporter, a fact that must be understood by policy makers. Take, for example, the U.S. corn industry. The U.S. is awash in grain corn and has been for a very long time. As a surplus grain corn producer, exports have been crucial to the U.S. corn industry in order to remove burdensome stocks. But export markets are the least attractive because the freight costs paid by producers are the highest and the net returns the lowest. U.S. agricultural policy has therefore for years been focused on offsetting costs associated with being a surplus producer in order to facilitate exports, maintain export market share, and reduce stocks. Thus, U.S. agricultural policy subsidizes producers, subsidizes transportation infrastructure, provides cheap and ease export credit to foreign buyers. That is expensive but politically sustainable in the U.S. So far.

However, U.S. policy of late is fixated on the absolute necessity of ensuring security of fuel, energy, food, water, and everything else through enhanced domestic production. This objective fits neatly with the economic thrust to foster expanded domestic markets and uses for corn so as to reduce the freight bill by supplying markets closer to home. So, from both the U.S. government's and the U.S. corn grower's perspective, as a surplus producer and net exporter, a primary policy focus must be on developing new and alternative domestic uses for corn. Thus the U.S. National Corn Growers' Association has as a key policy initiative the support and nurturing of the "bioeconomy". Biotechnology promises to develop new products, new chemicals, new fuels, new fibres, and new processes all in an effort to expand domestic demand, reduce reliance on exports, and reduce burdensome stocks all at the same time. That all makes eminently good sense as a policy thrust for both government and producer from a net exporter's perspective.

But from a net importer's perspective, does it also make sense? Experience in the Ontario corn sector from the last decade would say that expanding demand has not improved price sufficiently to entice more production. Quite the contrary. Experience would say that U.S. agricultural policy has ensured world prices (our prices) are driven artificially low which means all users have benefited from artificially low corn costs, especially for imported corn, while non-U.S. corn producers have been forced out of business. In this environment, expanded demand will simply be (and has been) supplied by increased imports of artificially cheap U.S. corn. Developing new uses for corn, while an eminently sensible policy direction in the U.S., does not hold the same promise in the net importer scenario that is the Ontario corn industry.

So, the second lesson to be understood is that merely taking policy initiatives and direction from the U.S. has not and will not work in the Ontario corn industry environment. Policy must reflect our unique net importer situation.

The OCPA clarified it's position on the bioeconomy and bioproducts at its December Board meeting. The policy statement reads "That OCPA supports bio-economy initiatives that provide direct financial benefits to corn producers." New products that may or may not increase demand for grain corn and where the economic benefit accrues to the secondary or tertiary processor, not the corn producer, are of limited economic benefit to the Ontario corn producer. Therefore, only those bioproducts that require specific traits in the grain corn and confer a premium to the corn producer for production of corn with those specific traits are of economic benefit to Ontario corn producers. Life as an importer is indeed different from life as an exporter. That difference must be recognized.

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