As commodity prices continue to escalate, driven by increased global grain demand, as well as subsidized grain-based ethanol, all kinds of lingering fundamental debates are being ushered to center stage.
The loudest, most obvious, of course, is the debate surrounding food versus fuel.
“You cannot use the combined grain crops of Australia and Indonesia for U.S. fuel and not have an impact on corn, soybean and food prices,” said Tom Elam, president of Farm Econ at the recent Annual Meat Conference.
In fact, at a Congressional briefing in March, analysts from the Food and Agricultural Policy Institute (FAPRI) explained, “Continuing high crude-oil prices and new bio-energy mandates, such as the U.S. Energy Independence and Security Act of 2007, are expected to sustain prices at historic highs across all agricultural commodities over the next decade.”
Although recent market turbulence and high crude-oil prices have clouded prospects, FAPRI analysts say the 10-year outlook for the global economy continues to be strong, with a 3.3 percent average annual rate of real growth in gross domestic product. Downside risk in the outlook is seen in the U.S. economy where rising energy and food prices, coupled with recent difficulties in the financial and real estate markets, restrict growth in 2008 to 1.9 percent.
With that said, FAPRI's outlook calls for global net trade in ethanol increasing by 2.53 billion gallons, reaching 3.61 billion gallons by 2017.
“New bio-diesel mandates in the Americas and Europe almost double the price of bio-diesel, pushing it to $6.00 per gallon, with the doubling of net trade over the next decade,” say FAPRI analysts. Their projections are for the world ethanol price to fall over the first half of the decade because of strong supplies encouraged by previous price increases. Growing demand is expected to strengthen the price again through 2017.
Along the way, energy policies will likely continue driving meat and poultry prices higher. Elam expects food price inflation to rise to five to six percent in 2009.
Environmental Price Tag
All of this is based on current mainstream production methods which utilize technology to increase both production and economic efficiency. When you start talking about non-mainstream production the spotlight shifts to another, less obvious debate: technology versus food versus the environment.
Certainly, there is growing niche demand for natural beef raised without the use of growth-promoting hormones (GPH), and also for beef produced start-through-finish on forage. Arguably, in both cases consumers perceive these products to be more environmentally friendly. The reality is different, though. At least it is based upon a recent study conducted by Alex and Dennis Avery at the Hudson Food Institute for Global Food Issues.
In their study, The Environmental Safety and Benefits of Pharmaceutical Technologies in Beef production—funded by the Growth Enhancement Technology Information Team—the researchers examine the differences in environmental costs between five beef finishing systems: organic grain-finished; organic grass-finished; natural grain-finished; natural grass-finished; conventional grain-finishing that utilizes GPH.
It's not surprising that natural, organic and grass-finishing yield fewer pounds of beef per animal than conventional grain-finishing (Table 1). Based on the model used, a grass-based finishing system required 660 acres of pasture and hay, whereas a conventional grain-finishing system required 365 acres of pasture, hay and corn.
The environmental cost is less obvious.
For instance, according to the Avery study, the land use cost per pound of beef is 5.04 acre days per pound (ADPP) for organic grass-fed beef, versus 1.99 ADDP for grain-fed beef produced sans GPH, and 1.64 ADDP for grain-fed beef utilizing GPH.
“If put in terms of a farm footprint, the use of growth-promoting hormones allows a 20 percent reduction in land needed for beef finishing over grain-based finishing alone,” say the Averys. “Compared to grass-based cattle production, grain-finishing, with growth-promoting hormones, increases land use efficiency three-fold.”
The researchers utilized an Iowa State University (ISU) model that compares the profitability of various niche beef production methods. You can find the details associated with the study and how the model was used at http://www.beeftechnologies.com/pdfs/avery_paper.pdf.
“In a very real sense, grass finishing of beef is an efficient use of farmland less suited for growing feed crops. There are several regions of the globe where grass production is arguably the best, most productive and most environmentally sensitive use of farmland,” say the researchers. “In such instances, grass-based beef production is a good use of such farmland, especially given the growing consumer demand for grass-finished beef. However, in farming areas with good to excellent arable cropland where grass production would represent a less efficient use of the land, grain-finishing represents a better, more efficient use of this farmland resource.”
The Averys point out the parameters of the model they utilized likely underestimate the relative advantage of grain-based finishing with GPH because the ISU model assumed grain-finished cattle are in the feedlot 303-329 days. Typically, cattle spend 220-240 days in the feedlot.
Another byproduct of increased number of days on feed, however cattle are finished, is the amount of greenhouse gasses they produce. Specifically, the researchers looked at carbon dioxide, secondary methane and nitrous oxide.
In sum, the researchers conclude, “Using a model system endorsed by sustainable agriculture advocates, and the emissions factors stipulated by the United Nations Intergovernmental Panel on Climate Change, we find that organic grass-fed production requires three times more land and results in 60 percent more greenhouse gas emissions (excluding nitrous oxide) compared to grain feeding with the aid of growth-promoting hormones.”
So, higher feed prices means the cost of beef production grows one way or the other, even if the direct cost hedge is leaving cattle on grass longer and in the feedlot for less time.