Sadly, An Opportunity Missed

Premier McGuinty's long-awaited June 17 Ontario Ethanol Growth Fund announcement was sadly an opportunity missed. On September 27, 2003, Premier Dalton McGuinty said "we are going to be asking Ontario farmers to grow a lot more corn, so we can put that stuff in our cars and clean up our air." The Ontario Ethanol Growth Fund hopefully will put ethanol produced in Ontario "in our cars and clean up our air"; but it could have done a lot more to encourage Ontario farmers "to grow a lot more corn". It could have and it should have. The OCPA laid out a plan for the ethanol incentive package needed to achieve the Premier's September 2003 promise that 5% of gasoline sold in Ontario by 2007 would contain ethanol. Our plan would have sent a very strong signal to Ontario corn producers to expand production. The Premier's plan does not. That is the opportunity missed.

Here's why.
The average acreage planted to grain corn in Ontario over the five years 1980 - 1984 was 2.1 million acres. That was before the dramatic change in U.S. farm policy ushered in by the 1985 U.S. Farm Bill and all Farm Bills since. The new policy direction stimulated U.S. production through large subsidies, insolated U.S. producers from the impact of the resulting low prices, exported those low prices onto world markets, and eroded the livelihood of foreign competitors. 20 years later, Statistic Canada's estimate of grain corn acreage planted in Ontario in 2005 is 1.6 million. We lost 500,000 acres of corn in 20 years, or 25% of previous acreage.

Average annual Ontario corn production over the five years 1980-1984 was 197 million bushels and average provincial usage was 207 million. In fact, by 1984/85 and 1985/86, Ontario was actually self-sufficient in corn with provincial production equaling provincial usage. Over those five years, annual imports spiraled downward to just 2.9 million bushels by 1985/86.

20 years later, average annual provincial corn production is virtually unchanged averaging 203 million bushels for the five years 2000-2004; but average provincial usage is now 260.3 million bushels with imports of U.S. corn averaging 58.4 million bushels per year to fill the void. Demand has surged while domestic production has remained constant and acreage has shrunk. Adding more demand has obviously not been sufficient stimulus to expand domestic production nor acreage.

Why? Because prices, artificially depressed by U.S. subsidies, have been insufficient to warrant growing corn in Ontario. On the other hand, corn acreage in the U.S. has expanded, increasing by 5.7 million acres in the last 4 years alone. Ontario has been a consistent net importer of corn for more than a decade. That means we have been on an import price basis for more than a decade. Import price basis is the highest level price can attain. No end user, unless enticed, would pay more for Ontario corn than they must pay to purchase U.S. corn and bring it in. Since we are already on an import price basis, the highest level possible, simply adding more demand cannot increase price. Expanding demand over the last 20 years has served only to increase imports, not enhance price above the import basis nor expand domestic production nor acreage.

However, with the provincial government committed to devote Ontario taxpayer dollars in support of corn-based ethanol usage and corn production as the Premier's 2003 promise clearly states, there was an opportunity to ensure that for once expanded demand might translate into expanded domestic production of corn.

Didn't happen. The lesson of the previous 20 years was ignored; that simply adding more demand through grants to build plants and incentives to produce ethanol, is not sufficient to expand domestic production of corn, "to grow a lot more corn" as the Premier promised.

What was needed was a plan that made Ontario corn more attractive so that Ontario ethanol manufacturers would be enticed to buy Ontario corn rather than U.S. corn imports. The key point was to stimulate demand, not just for corn, but for Ontario corn in order to overcome the impediment of artificially low corn prices suppressing Ontario corn production. But how to preferentially enhance demand for Ontario corn and hence production of Ontario corn? That's where OCPA's proposal for the ethanol incentive package comes in. Our proposal based Ontario taxpayer-funded grants and assistance to ethanol producers on their purchases of source-verified Ontario corn, not merely on their output of ethanol which can and will continue to be made from surging imports of artificially low-priced subsidized U.S. corn. By providing an incentive for ethanol manufacturers to preferentially purchase Ontario corn, Ontario corn production would be stimulated. Increased production of Ontario corn would in-turn stimulate rural economic growth and development in a way that increased purchases of imported U.S. corn can never do.

Sadly, an opportunity missed.

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