Which comes first, Ethanol or the Egg?

AUSTRALIA - Managing Director of the Australian Egg Corporation, James Kellaway has today demanded that ethanol producers stop their calls for more government subsidies.
calendar icon 16 April 2007
clock icon 3 minute read

“Ethanol investors who are calling for greater subsidies are irresponsible. The nature of Australian food markets and the impact of inflation on households is complex. But what we do know is that artificial government interference in grains markets will affect prices for consumers” said Mr Kellaway.

“Artificially distorted grains markets hurt the Australian egg industry because the single largest variable cost to egg production is feed grain. Ethanol subsidies distort grains markets – allowing subsidized purchasers to out-bid existing grain users. Because of this, consumers will eventually feel the impact of elevated grain markets on egg prices.”

The egg industry currently uses 488,000 tons of feed grain per year. This translates to each hen consuming 950 grams of feed per week (49.4 kilograms of feed per year) or 2 kilograms of grain to produce a dozen eggs.

Due to the current drought, the weighted average of egg prices increased by 4.8% in the December 2006 quarter. This increase had the largest effect on the Food Group that influences the CPI and only second to the increases experienced in domestic holiday travel and accommodation that increased by 6.2% during the period.

“The drought is unavoidable, a fact of life. However, similar impacts on prices would be created by artificial government supports for ethanol. One report by the U.S. Agriculture department determined that for every $1 spent subsidizing ethanol, cost consumers more than $4” said Mr. Kellaway.

These increased costs occur because farmers, in pursuit of elevated lucrative subsidies, divert production to ethanol grain production rather than other unsubsidized markets. Every ton of grain used for to ethanol production leaves less for human consumption and animal feed - thus people pay more for eggs.

“The public should remember that there is no such thing as a free lunch, and subsidizing ethanol fuel will have an impact on the cost of production for foods, including breads, beers, eggs, and meats.”

“The egg industry is committed to continually provide a cost effective natural protein food staple to Australians now eating three billion eggs per year. However we will face real problems if any further subsidies are provided for the manufacturer of ethanol,” Mr Kellaway concluded.

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