Biofuel co-products as livestock feed - Opportunities and challenges

An outlook on world biofuel production and its implications for the animal feed industry 9their glycerine output to refiners to be processed for highvalueuses, 33 percent marketed glycerine to be used forlivestock feed, 4 percent sold the co-product as fuel, andthe remaining survey respondents either did not specify ause or listed a minor use.Impacts on global livestock and poultry marketsNumerous studies have examined the potential impacts ofincreased biofuels production on animal feed supplies andprices, as well as the production levels and prices of meat,milk, eggs and other agricultural products (Taheripour, Herteland Tyner, 2010a, b; Elobeid et al., 2006; Banse et al., 2007;Birur, Hertel and Tyner, 2007; Westcott, 2007; USDA, 2007).Many of these studies have employed computable generalequilibrium (CGE) or partial equilibrium economic models toestimate the potential long-term impacts of biofuel policies.While most of these studies suggest that large-scale biofuelproduction results in higher long-term prices for certainagricultural commodities (thus increasing input costs forthe livestock and poultry industries), the magnitude of theimpacts is generally modest. For example, in its analysis ofthe impacts of the United States’ Renewable Fuel Standard(RFS), the U.S. Environmental Protection Agency (EPA, 2010)found that full implementation of the programme’s biofuelconsumption mandates might result in price increases ofjust 0.8% for soybeans, 1.5% for soybean oil and 3.1%for maize by 2022 over a baseline scenario with no biofuelsmandate. Similarly, one recent study indicated that, from2005 to 2009, prices for rice, wheat, soybean and maizewould have been only marginally lower (-0.2, -1.3, -1.7 and-3.3 percent on average, respectively) if U.S. ethanol policieshad not existed (Babcock, 2011).Most of these studies indicate that the production andconsumption of meat, milk, eggs and other agriculturalgoods may be slightly reduced due to higher feed inputcosts induced by biofuels expansion, but again, the impactsare found to be small. For example, the U.S. EnvironmentalProtection Agency found that full implementation of theRFS biofuel consumption mandates could be expected toresult in just a 0.05% reduction in consumption of livestockproducts and 0.03% reduction in consumption of dairyproducts by 2022 (EPA, 2010). In an analysis of the agriculturemarket impacts of achieving the 2015 RFS mandate forconventional (maize starch) biofuels, the U.S. Departmentof Agriculture (USDA) found no change in U.S. chickenoutput, an average -0.2% reduction in milk output andan average -0.3% reduction in pork output over baselinevalues between 2007 and 2016 (USDA, 2007). Beef outputactually increased an average of 0.1% in the USDA analysis,as beef cattle production was assumed to benefit fromincreased production of distillers grain.While the results of these economic analyses are instructive,many of the studies have failed to properly incorporatethe recent economic impacts of increased consumptionof biofuels co-products by the livestock and poultry sector(Taheripour, Hertel and Tyner, 2010b). In recent years,prices for biofuel feed co-products have generally declinedrelative to competing feedstuffs, which is not accuratelyaccounted for in most economic modelling studies examiningadjustments by the livestock and poultry sectors inresponse to increased biofuel production. Recent pricingpatterns indicate that biofuel co-products can help thelivestock and poultry industry offset minor cost increases fortraditional feedstuffs that might result from expanded biofueldemand. Many of the economic modelling studies discussedhere were conducted prior to the establishment ofsustained price discounts for key biofuel feed co-productsrelative to traditional feedstuffs.Recognizing this shortcoming in previous modellingefforts, Taheripour, Hertel and Tyner (2010a) introducedan improved co-product substitution methodology to theGlobal Trade Analysis Project (GTAP) model, a popular CGEmodel used by government agencies and other entities inthe U.S., EU, and Brazil. Based on the improved methodologyand updated modelling results, Taheripour, Hertel andTyner (2010b) concluded that “In general, the livestockindustries of the US and EU do not suffer significantly frombiofuel mandates, because they make use of the biofuelbyproducts to eliminate the cost consequences of highercrop prices”. The study further found that “…while biofuelmandates have important consequences for the livestockindustry, they do not harshly curtail these industries. This islargely due to the important role of by-products in substitutingfor higher priced feedstuffs”.While Taheripour, Hertel and Tyner (2010a) representedan advancement in the analysis of the impact ofexpanded biofuels production on livestock, it did not takeinto account the ability of DDGS to displace more than anequivalent mass of maize and soybean meal, as documentedby Arora, Wu and Wang (2008) and Hoffman and Baker(2011). Nor did the Taheripour study account for likelycontinued improvements in the feed conversion efficiencyof livestock and poultry.Specifically pertaining to biodiesel production, researchhas been conducted to evaluate the impact of increasedbiodiesel production from oilseeds on the livestock sector(Centrec, 2011). Utilizing a partial equilibrium model calledthe Value Chain Analysis (VCA) developed for the UnitedSoybean Board, the impacts of single soybean oil supplyor demand factors were examined in isolation from otherfactors. A decrease in soybean oil demand for biodieselwas isolated and analysed. The analysis found that reduceddemand for soybean oil for United States biodiesel productionwould result in lower soybean oil prices, reducedsoybean production and significantly higher soybean mealprices. Thus, the analysis showed that increased demand