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Tyson warning on food versus fuel debate

Doug Cameron/MSNBC
November 13, 2006

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Tyson, the world's largest protein producer, on Monday weighed into the food-versus-fuel debate with a warning that ethanol-driven corn prices would push up the cost of beef and chicken for US consumers.

Rising ethanol production has driven corn prices to record levels despite two good harvests, raising fears that the fuel additive would squeeze out the availability of grain for animal feeds.

Dick Bond, Tyson's president and chief executive, called on Washington to recognise the competing claims when drawing up a proposed new farm bill next year, amid support on both sides of Congress for ethanol production to rise as part of a renewable fuels strategy.

"I believe that the American consumer is going to have to pay more for protein," Mr Bond told analysts as the company reported a full-year lossas rising costs combined with sluggish sales.

"The consumer is ultimately going to have to pay for the higher grain costs," said Mr Bond. "The farm bill is the key in 2007. [The food industry] needs to make sure our legislators know what effect this is having on food-versus-fuel."

Mr Bond's remarks are the clearest statement to date of the unease felt among food producers about rising grain prices, and could prompt a clash over the competing interests of the energy and food sectors.

Leading ethanol producers such as Archer Daniels Midland, the US market leader which is also a big producer of animal feed, insist there is no competition. Pat Woertz, ADM's chairman and chief executive, last week said that a combination of market forces and new technology would provide supplies for both sectors. Ms Woertz told reporters that rising corn prices would prompt farmers to plant more corn, while biotechnology was improving crop yields.

However, Mr Bond suggested that the two sectors are in competition. "We will be trying to make sure there is enough feed for food, as opposed to just feed for fuel," he said, noting that consumer demand would see all of the higher grain prices passed on to consumers.

He noted that rising ethanol production could benefit some food producers because of an increase in the supply of distiller's grain, a byproduct of fuel production used as an animal feed. "There may be more cattle feed in the upper Midwest [where ethanol production is concentrated], which is positive for us as that's where many of our cattle are located."

Mr Bond, who was promoted to become CEO last May, said improving supply and demand conditions in the protein sector could see the company make a profit in its fiscal first quarter to end December after three successive losses.

Tyson has cut costs and production after fears over avian flu led to a slump in chicken exports and oversupply in the domestic market, while beef shipments remain restricted by concerns over BSE.

Japan ended its ban on US exports earlier this month following inspections of the US cattle stock, but Mr Bond said shipments to what had been its largest overseas market remained at just a quarter of pre-BSE levels. Moreover, exports to South Korea were at a "standstill" because of uncertainty over the terms of the ban relaxed earlier this year.

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