Several reports by the George Morris Centre argued that the growing ethanol industry in Canada has negatively impacted the pork industry by strengthening corn prices. However, an analysis of the reports by an independent consultant found that the corn basis has actually weakened as ethanol production has increased. This is due to two factors not considered by the reports - the strengthening Canadian dollar and increased corn production in Ontario. The real reasons for struggles in the pork industry are lower market prices resulting from currency exchange rates, not increased ethanol production as the reports claimed.

1. Head: Ethanol not to blame
Subhead: A second look at ethanol and the pork industry
By: Claire Cowan
Several reports published over the past 3 years by the George Morris Centre postulate that the ethanol
industry in Canada has a negative impact on the pork industry. These reports, published in November,
2007, January 2009 and August 2009 have all had the same negative view of the ethanol industry.
The report from November 2009, authored by Al Mussell, Graeme Hedley and Douglas Hedley of the
George Morris Centre, persuades feed grain producers to “back away from support of grain-based
ethanol” as it against their own long-term best interest.
The August 2007 report, by Al Mussell and Larry Martin, attack the policy objectives of the Canadian
government’s mandate to support ethanol production.
The Ontario Corn Producers’ Association, a key player in the development of ethanol production in
Ontario since 1984, eyed these reports with serious concern.
“We are very sympathetic with hog producers. They are going through a really tough time right now and
we can relate: corn producers have been subject to severe low prices in the past. But, OCPA has serious
concerns about the findings of the George Morris Centre reports,” says Don Kenny, 1st Vice President of
the organization and chair of the Grain Trade and Market Development committee.
In an effort to better understand the George Morris Centre reports, the OCPA issued a third party
review of the first two reports from November 2007 and January 2009. Victor Aideyan, Senior
Consultant of HISGRAIIN Commodities reviewed the two reports, analyzing the conclusions of each
report. A review of the third report is currently underway.
Understanding the Ontario corn basis
From Aideyan’s report, the most striking finding is his conclusions about the corn basis. The George
Morris Centre claims that a strengthening basis, the relative price of grain in an area compared to a
benchmark price, usually the CBOT price, is harming pork producers through increasing feed costs.
However, Aideyan’s analysis of the reports and the data show that “since 2000, we see that the basis is
moving in a direction opposite to what their argument has claimed. Since we have seen ethanol develop
in Ontario, we have seen basis for corn weaken.”
Historical data shows that Chatham, Ontario average basis has gone from +0.50 in 2002 to just over 0.00
in 2008 (see Chart 1). During this same timeframe, ethanol production in Ontario has risen dramatically
with a current estimated production capacity of 201 million gallons per year.
A weakening basis benefits users of corn, including livestock and meat producers. “There is no evidence
of Ontario moving to an import basis, as the George Morris Centre claims that such a process has
occurred and has hurt livestock producers,” explains Aideyan.

2. Theory versus reality
Theoretically, the claims put forth through the George Morris Centre reports regarding basis make
sense. “If everything else was static, the theory argues that this is what should be happening,” says
Aideyan, referring to increased ethanol production causing a strengthening basis.
However, the reports from the George Morris Centre are excluding two very instrumental market
factors. The first factor, the exchange rate, “has most certainly helped weaken the basis.” Aideyan’s
report goes on to explain that “if a country’s currency is strengthening we expect that country’s basis to
weaken – all else being constant.” With the Canadian dollar increasing in value, it is clear this has a
negative impact on the Ontario corn basis.
“The second factor is the increase of corn production,” says Aideyan. According to his report, grain corn
production in Ontario has increased from 180 million bushels in 2000 to nearly 270 million in 2008. As
basis reflects ‘surplus’ or ‘deficit’ commodity status; the volume of production is a major determining
factor. Aideyan’s report concludes that increased grain corn production in Ontario is very likely to have
been a factor in weakening grain corn basis.
“Apparently these two factors, the exchange rate and increasing production, have overwhelmed any
other factor that may or may not have been strengthening basis,” concludes Aideyan.
Ultimately, blaming a strengthening basis for the difficulties being faced by Ontario’s non-supply
managed livestock industry, as purported the George Morris reports, does not stand up against the
actual data during 2002-2008.
The real culprit (do we change this to “Actual Factors” or something like that to avoid the idea of
culprit(s)/guilt?
“We can certainly sympathize with pork producers,” says Kenny. “In 2003, corn producers were
struggling with the same issues: corn prices were too low to support production.”
Aideyan confirms Kenny’s sentiment explaining that “the reduction in revenue because of lower prices is
the real reason why the livestock industry in Ontario has been losing money and shrinking over the last
few years.”
Specifically, Ontario pork producers have suffered at the hands of the exchange rate – the same
exchange rate that has resulted in a weakening basis and lower prices for corn producers.
“On average, Ontario producers have lost about $33 per head since 2005, strictly because of the
strengthening Canadian dollar,” says Aideyan.
Derived from actual exchange rates during 2000-early 2009 and the real Ontario hog prices Proven
mathematically, this is a striking number. This loss does not even begin to take into account the possible
loss pork producers have experiences as a result of the H1N1 virus. In the most recent report, the

3. George Morris Centre validates the figure of $40 per head that has been claimed in the media as the loss
experience by pork producers due to H1N1.
“It is obvious that pork producers are suffering from market conditions out of their individual control. As
much as we can identify with their current situation, it is not the result of increased ethanol production
as the George Morris Centre would have you believe,” says Kenny.
To read Aideyan’s full report, including his response to the George Morris Centre’s statements on
ethanol’s environmental benefits, please see our website www.gfo.org or contact Claire Cowan at
ccowan@ontariocorn.org.