As discussions over the 2007 farm bill heat up, what will legislators decide is most important in order to meet our growing energy demands through biofuels? During today's episode of OnPoint, Jon Doggett, vice president of public policy at the National Corn Growers Association, explains what his organization is lobbying for in this year's farm bill. Doggett explains why he believes other industries are not being affected by the increasing demand for corn and biofuels. He also describes advancements in seed technology that are improving ethanol production and explains how the push for cellulosic ethanol will affect corn growers.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jon Doggett, vice president of Public Policy at the National Growers Association. Jon, thanks for coming on the show.
Jon Doggett: Glad to be here.
Monica Trauzzi: Jon, we're hearing reports this week that say in response to the push for biofuels farmers in Mexico are replacing blue agave and German barley crops for corn crops. And these are two major industries that are being affected by the increased need and demand for corn. Why should other products and industries suffer to respond to the increased need for biofuels?
Jon Doggett: Certainly, they're not suffering. The growers who are growing those crops are responding to a market that is changing. Just as markets change around the world, folks in Mexico are changing to a crop that makes them more money, so that's part of the market process.
Monica Trauzzi: So would you say that the tequila and beer industries that are directly needing these sorts of crops are not going to be impacted?
Jon Doggett: Well, certainly they'll be impacted, just as any industry where the input costs change is going to have an impact. But the alternative to that is to go ahead and tell folks that you should make less money in order for the tequila industry and the brewery industry -- so that they could make more money and their shareholders can make more money. It's certainly not a very good way to go ahead and conduct agriculture in a more market-oriented way.
Monica Trauzzi: The National Corn Growers Association believes the goal of 15 billion gallons of ethanol produced by 2015 is a reasonable target. How do you reach that target without disrupting the food and feed supply and food and feed prices? Corn is used in basically all processed foods in the U.S.
Jon Doggett: Certainly, 15 by 15 by 15, you have to have that last 15 by 2015, so we do have a period of time that we're going to get there. But this is a concept that we talked about back in December of '04 in looking at what our industry would look like in 10 years. And we've reviewed that 15 by 15 by 15 every year since then, and each of those two years our growers come back and say, "We were probably too conservative." But there's a couple of things that are impacting what is going on in the marketplace and how we're going to get there. First of all, technology, seed technology has changed significantly in the last few years and it's going to only be more and more significant in the next several years as new traits are developed, both using bioengineering and using conventional breeding techniques. But our yield curves are significantly higher than they have been in the past. Secondly, the efficiencies of the amount of corn it takes to make ethanol is improving every single year. It used to be you would get 2.5 gallons of ethanol from a bushel of corn, now we're over three and that's going to change as well in the next several years. And every year we're going to see more and more ethanol per unit of corn. So that's going to impact it as well. And, lastly, the thing I think that people forget is that there's 56 pounds of corn in a bushel of corn and the starch is was used in the ethanol process. But the protein, which is 14 pounds of pretty much very high-grade protein in the form of distillers dried grain, is a residual product from that process. And that's being said now predominantly in the cattle industry, for dairy and for beef cattle. But with technology that is now coming online in many, many plants that DDG is going to be a feed that is going to be fed more and more to pork and to poultry, the monogastric. So, really, the evolution is in technology, and in order to get to that technology you're going to have to have profit in all of those sectors. You're going to have to have profit at the corn farmer sector, the ethanol sector, the livestock sector. So all of those industries will need to respond to some market signals and all of them will need to make money in order to continue to have the evolution of technology that is going to make this possible.
Monica Trauzzi: And you're touching on another major issue that we're hearing about relating to the increased corn production. We're hearing that the price of milk could go up this summer. We're already seeing that the price of meat has gone up due to the high price of corn and these are real kitchen table issues. They're affecting the average American. So how do you convince the average consumer that this push for biofuels is a positive thing when they're going to the grocery store and they're seeing higher prices for all the products that they need to purchase?
Jon Doggett: Well, certainly, if we take a look at the gasoline sector, people complain about gasoline prices. And the primary reason we have high gas prices is because we're maxed out in gasoline refineries in this country. If we didn't have the 6 billion gallons of ethanol in our fuel stream right now, gasoline prices would be significantly higher than they are. So, really, we've helped moderate the increase of cost of gasoline. Secondly, the translation from corn prices to actually what the consumer pays is fairly insignificant for many of the products, less so with dairy, less so with meat, but things like cornflakes. The increase in the price of corn only impacted the actual cost of that corn in that box. That large box of cornflakes only went up about two cents, two pennies. The fuel cost increase to deliver that box of cornflakes was more significant than the increase in the price of corn. So, really, what the farmer is getting there is pretty insignificant. And the second part of it is this is a market that's in transition and farmers are going to overproduce when they're going to have a higher price.
Monica Trauzzi: Many critics of corn ethanol are looking several years forward to when cellulosic ethanol technology will be ready to go. Once that happens, what do you expect the impact on the corn industry will be? Will all the farmers who have altered their crop makeup to incorporate corn be able to handle some financial setbacks that may happen when cellulosic is the up-and-coming technology?
Jon Doggett: Certainly. And we grow corn, but a small fraction of that corn plant is the corn kernel, the rest of it is cellulose. So we see a transition for many of our growers. But I've been hearing - we've been hearing that cellulosic ethanol is going to happen and it's going to be here in the next five years. We've been hearing that for many, many years now. So is it going to happen? Yes. It won't be revolutionary. It will be evolutionary. We will take the fiber from the corn kernel that's already in the plant and that will be probably the first cellulosic feedstock. There's plants now that are starting to use that technology to take the fiber out of the corn kernel. There's stover, we can't take all the stover because it's a good economic practice to leave some of the stover on the field. But that plant is there, it's close to the ethanol plant. So we're going to probably see a mix of starch-based ethanol and cellulosic-based ethanol in the same plant.
Monica Trauzzi: I want to get to the farm bill, because of course it is farm bill season. A big focus this year is on the research and development of cellulosic ethanol and loan guarantees for cellulosic ethanol. What are your thoughts on cellulosic becoming so high profile? Does it detract from incentives for corn producers or corn ethanol production?
Jon Doggett: Certainly not, because, again, our growers raise plants. And whether it's going to be a corn plant that's used for cellulose or switchgrass that may be used for cellulose, we think the that we have an advantage because of the tremendous amount of resources that we, as an industry, have put into research for how to produce corn and how to produce ethanol from corn. So we think that we'll have an advantage and we'll continue to have that advantage, but we'll also have the fact that we have a cellulosic stockpile that's near at hand, raised by the same people that are raising the starch.
Monica Trauzzi: What are some of the main points that you're lobbying for in this year's farm bill?
Jon Doggett: What we're looking at is to change the way we provide a safety net for farmers. Before it has always been based on a price, that price has been somewhat arbitrarily set every five years by the Congress. We're looking at a more market-based target price and to take the revenue component, so a revenue per acre, so that when a farmer has a good year, has a good crop and a reasonable price, there's no reason for that farmer to get a payment. But if there is no crop or a very short crop or the prices fall significantly, then you have the opportunity then for that grower to go ahead and have a safety net to protect his ability to produce the next year.
Monica Trauzzi: Japanese and European carmakers have not jumped on the idea of producing flex fuel vehicles. They're simply not as excited about ethanol as the U.S. automakers are. Why do you think it is that foreign automakers have focused their energy on things like hybrid vehicles and not on flex fuel vehicles?
Jon Doggett: I think primarily it's because the foreign automakers are producing, in many cases, for countries where they're producing smaller cars. They have to fit a different niche than the U.S. car producers do. And so I think that perhaps we're going to see a change, but we've seen hybrids versus flex fuel vehicles. We're seeing electric cars versus hydrogen powered cars. I think that there's going to be an interesting evolution in the car industry in the next few decades as to what is going to be the fuel source and what kind of fuel source and where you're going to be able to access that fuel for the consumer.
Monica Trauzzi: A couple of months back there was a lot of attention paid to a possible Brazil-U.S. relationship relating to ethanol. Would that take some of the pressure off of the U.S. farmers to produce as much corn is they're trying to produce now? Do you see any benefits to a type of relationship like that?
Jon Doggett: Certainly do and we've had a number of discussions with the Brazilians. And we are the biggest producers of ethanol and in the United States we're the biggest users of ethanol. But there's a big world out there that is looking for more energy. They're looking for cleaner energy and ethanol is that new renewable, cleaner energy source that has a built-in market in a lot of places in the world. We're hearing from countries all the time, how do we get ethanol? So there's going to be ethanol as we ramp up our production. There's going to be ethanol that this country can possibly export. Certainly the Brazilians are going to export. I don't think it's a question of are we going to export ethanol to Brazil or is Brazilian ethanol going to come into this country? But it's going to be we are two big producers of this product and there's a big market worldwide for it.
Monica Trauzzi: All right. We're going to end it right there. Thanks for coming on the show.
Jon Doggett: Thank you.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
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