Agricultural Transportation and Energy Issues. Senate hearing 2005.

[ After reading this hearing, I can’t help but wonder if the main reason for ethanol is to subsidize farmers.  It certainly does nothing for the energy crisis since the net energy is probably negative and at best break-even.    Since the heavy-duty transportation involved in all aspects of agriculture mainly burns diesel, ethanol is of no help, since diesel engines can’t burn ethanol or diesohol, and most engine warranties allow 5% biodiesel to be mixed in with petroleum diesel.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

Senate 109–510. November 9, 2005. Agricultural Transportation and Energy Issues. U.S. Senate. 123 pages. 

Excerpts:

SENATOR NORM COLEMAN, MINNESOTA

Our transportation system is the lifeblood of agriculture.

U.S. agriculture is highly dependent upon the effectiveness of our integrated agriculture transportation system, and poor transportation directly adds to farmers’ bottom lines. Truck, rail, and river must be able to work together to compete with each other and keep the price of transportation down.

The transportation and energy challenges we face this year hit our farmers particularly hard.  Both transportation and energy are basic inputs into almost every farm and business, so high transportation and energy costs go to the heart of our competitiveness as a nation.

Congress recently passed a Highway Bill to address many of our surface transportation needs, but we have yet to pass the Water Resources Development Act, known as ‘‘WRDA,’’ to authorize crucial funding for our water infrastructure. Improving our river navigation will not only lower the cost of doing business for producers, but also mean less highway congestion

 

Hurricane Katrina certainly highlighted the importance of river transportation to farmers, which was devastating to the agriculture transportation system in and around the Mississippi Gulf region. Overall, this area is responsible for about 60 to 70% of U.S. world grain exports.

 

It is estimated that one in four acres of U.S. production is destined for export channels; 60% of which goes through New Orleans to the Gulf.

 

Rail and truck transport have been critical for agriculture in this time of interrupted river traffic; but clearly, agriculture is heavily dependent on our rivers. And we cannot expect to compete with the rest of the world using locks over 70 years old, as we have on the Upper Mississippi River system.

 

But all of us here know transportation costs can’t be just boiled down to infrastructure. The price paid for energy has an enormous impact. And beyond transportation, energy prices are taking a severe toll on our farmers.

 

On average, energy accounts for about 13% of a farmer’s expenses. The increased costs of fertilizer caused by high natural gas prices, combined with extraordinarily high diesel prices and high transportation costs, have been a true challenge for producers today, who can’t raise their prices and are forced to absorb these very severe increases.

 

Clearly, our energy problems go far beyond Hurricane Katrina. I want to share  a few numbers with you: 37, 53, 60, 74. These four numbers represent the percentage of petroleum supplies we purchased overseas in 1980, 2002, today, and the projected purchases we will make in 2025: from 37 to 74. We were addicted to foreign oil in 1980; wherein our costs double our dosage down the road.

 

I am serious when I say that this Nation’s energy dependence is the greatest threat to our economy, our security, and our freedom that this Nation faces.

 

 

Fletcher R. Hall, Executive Director. The agricultural and food transporters conference of the American Trucking Associations.

 

According to U.S. government estimates, the transportation of agricultural commodities and products accounts for a significant portion of all U.S. freight traffic. In fact, defining agricultural movement to include movements of farm inputs, raw agricultural commodities, and processed agricultural commodities, agriculture is a primary user of transportation services in the U.S. at over 23% of total tonnage and over 31% of the total ton-miles, moved every year.

 

The U.S. agricultural sector depends extensively upon truck transportation for a number of reasons. Agricultural production typically occurs in areas substantially removed from the final markets of agricultural products.  Production and processing are generally dispersed over wide areas or regions. Agricultural commodities and products also tend to require a wide range of transportation services which are significantly impacted by energy issues and energy prices.  Agricultural commodities and products such as grains, are bulky and of low value. Others, such as fresh fruits and vegetables, and meats are highly perishable and of high value. Still others, such as livestock, require specialized handling and equipment. Modern commercial agriculture is also input-intensive, using a broad range of products from fertilizers to feed additives. These inputs generate demands for truck transportation, and their costs are affected by the price and availability of various forms of energy.

 

The trucking industry is essential to agriculture as trucks are now the primary transport mode for the movement of all major agricultural commodities.

  • Trucks are the leading transport mode for the movement of fresh fruits and vegetables in the U.S., with a market share of over 90%
  • 95% of livestock transportation is handled by truck, and fresh dairy products are primarily handled by trucks as well
  • According to the USDA’s latest grain transportation modal share analysis (October 2004), trucks transported 68.4% of all domestic grain movements ni the U.S. during the year 2000. Rail and barge shares decreased, while truck shares increased through 2000,making trucks the dominant mode for grain transport.
  • Trucks are the largest carrier of produce to ocean ports for export

 

Rising fuel costs have the potential to create a ripple effect through the economy whereby consumers are likely to see higher costs for whatever they are purchasing whether grown on a farm or delivered by truck. This is significant because 80% of communities in the U.S. get their goods solely by truck.

 

Higher diesel prices will raise the cost of harvesting and post-harvesting treatment e.g., drying, moving and storing of crops in and from the field. Higher energy costs in agricultural transportation will cause food prices to rise, as much as 3.5% this year (versus 2.5% per year in the preceding decade).

 

SENATOR KEN SALAZAR, COLORADO.    Here is what I am hearing from my state during harvest. Agriculture producers are some of the largest fuel consumers in the U.S., and producers are facing enormous fuel costs. For example, in Grand Junction, Colorado, diesel prices today are still over $3 a gallon. I have heard from a farmer in Brandon, Colorado, who has a dry land wheat farm of about 5,000 acres. He has seen a 217% increase in diesel costs, and about a 71% increase in gasoline costs since the summer of 2004. This operation will use about 200 to 250 gallons of diesel per day during the heavy farming season. If fuel prices do not moderate, this farmer will realize a doubling of fuel costs for 2006; equating to an additional $16,000 annually, just for his fuel expenses on his farm. I heard from another farmer in northeastern Colorado who, in order to cover the increasing price of fuel, has applied for additional loans from his local bank; only to be turned down because he was already over-extended on his existing loans. These anecdotes illustrate a problem which goes far beyond the borders of Colorado. After 5 years of weather-related disasters, such as droughts, hurricanes, or fires, these higher-input costs are having a severe impact not only on producers’ ability to harvest this year, but also in their ability to secure financing to operate for the next year. This is a crisis that is undermining the stability of farming operations across our country. This is a crisis and emergency that we must address.

 

I believe they need economic loss assistance, which will help offset the staggering increases in fuel and fertilizer costs.  Our producers are in a downward spiral, and we must help end that downward spiral. Each day, this energy crisis continues to drive farmers and ranchers into deeper debt, putting the life of our rural communities at risk.

 

SENATOR BLANCHE LINCOLN, ARKANSAS. The severe drought conditions which the country has seen, particularly in our region, combined with the high fuel costs, have forced our farmers to experience extremely high operating costs. We are hearing from our bankers, as well, our financial institutions. I have got three counties of banks that are telling me that they are going to have a record number of farm operations that will not be able to pay out or cash-flow because of the record amounts of resource they have had to put into producing a crop, and then to find the natural disasters that have wreaked havoc on them at harvest time. So it is a time when we have to remember what it is our producers do. And they do it very quietly. Very quietly, they produce the safest, most abundant and affordable food supply in the world. They make sure that, per capita, we pay less for our food supply than any other developed nation in the world. Our farmers are devastated, in terms of these fuel costs. And it is not just in terms of the diesel they put in their tractors. It is also the feedstock for their fertilizer. They are paying record prices for fertilizer, the feedstock, in the natural gas that is causing that to happen. And the projection is that in the next several years, we will no longer have a domestic production of fertilizer. So once again, we are going to set another variable onto our producers of not knowing what and when they can depend on the products that they need in order to produce this safe and abundant food supply.

 

Those small, rural county roads oftentimes are not able to transport the large cotton modules and the other crops that we grow. So we have got a lot of different issues there. But without a doubt, the fuel costs are the greatest burden that our farmers are carrying right now.

 

I would like to also echo Senator Salazar, in terms of relieving our dependence on foreign oil.

 

One consistent thing I hear from our ag producers in the South, it is, ‘‘Please, please, allow us to be a part of providing the kind of fuels, the renewable fuels, that we need in this country, to lessen our dependence on foreign oil and give us yet one more secondary market where we can market our products and our crops.’’

SENATOR DEBBIE STABENOW, MICHIGAN.   one of the reasons I was a strong supporter of the energy provision of the 2002 Farm Bill was because of the important ways in which we in agriculture can help to solve the problem of our dependence, over-dependence, on foreign oil.

 

KEITH COLLINS, PH. D., CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE.  The hurricanes also worsened the already tight energy situation. Farmers paid 43% more for diesel fuel in October 2005 than a year earlier; while prices paid for fertilizer by farmers were up 13% this October, compared with last October.

 

HOWARD GRUENSPECHT, DEPUTY ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, U.S.

 

Hurricanes Katrina and Rita wrought incredible devastation on the central Gulf Coast; most importantly, in terms of human suffering, but also in energy impacts that have spread well beyond the stricken area. At its peak impact, Katrina shut down over 25 % of U.S. crude oil production, 20 % of our crude imports, 10 % of our domestic refining, and over 15 % of U.S. natural gas production. Rita compounded those impacts. For example, nearly 30 percent of total U.S. refining was shut in ahead of Rita, and outages continued at nearly 20 percent of refining capacity for some weeks thereafter.

 

The farm sector, as many of you have mentioned in your opening statements, is a significant consumer of energy, particularly diesel fuel, propane, and electricity. In addition to direct farm use of energy, agriculture is indirectly affected by energy requirements in the fertilizer industry, specifically in nitrogenous fertilizers.

 

Even before Hurricane Katrina struck, crude oil and petroleum prices were setting records. Oil prices worldwide have been rising steadily since 2002, due in large part to growth in global demand which has used up much of the world’s surplus production capacity. Refineries have been running at increasingly high levels of utilization in many parts of the world, including the United States.

 

Using previous information about energy use on farms and in closely related sectors, every additional dime added to the price of gasoline and diesel oil per gallon, sustained over a year, costs U.S. agriculture almost $400 million annually. Every dollar added to the price per 1,000 cubic feet of natural gas costs agriculture over $200 million annually in direct expense, and costs the fertilizer industry almost $500 million annually. Every dime increase in the price of propane costs agriculture over $200 million per year. Every penny increase in the price per kilowatt-hour of purchased electricity costs agriculture about $500 million annually in direct expense, and also adds about $35 million to the costs of the nitrogenous fertilizer industry.

 

Mr. COLLINS.  Early in my career, we used to always say that truck transportation was 3 times as expensive as rail, and rail was 3 times as expensive as barge. So if rail or barge wasn’t available, you did truck. If it was between rail and barge, you did barge. But that is not so true anymore. Because of the high energy prices, because of the demand, because of an economy that grew at 3.8 % last quarter, there has just been tremendous demand for all modes of transportation.

 

As far as farmers that would be exiting agriculture or unable to finance their operations,  I can’t answer that question. There are too many factors that determine whether someone is going to go out of business or not. You can’t take a change in energy costs in 1 year and translate that into somebody leaving the business. American agriculture is incredibly diverse. People have tremendous sources of income outside of farming. Farm income accounts for 13 percent of total household income of all 2.1 million farms, so they have other sources of income to draw on if they wanted to stay in business.

 

SENATOR TOM HARKIN, IOWA.  Our inland waterways transport 16 % of our goods, at 2 % of the cost of fuel usage. So it is very efficient, very effective.

 

Senator TALENT.  I think the ability of our producers to continue to produce the safest and most abundant and highest quality food supply in the world is not just an economic issue. It is a national security issue. I don’t want to be in a position where we are importing food the way we import oil. And part of that means, when there is some extraordinary hit on the farm sector, we should ameliorate a little bit some of the costs that they have had to take because of that. I don’t view that from an ideological perspective. For me, that is just a question of trying to protect the food security of the people of the country. To say it is unprecedented, is factually incorrect.

 

Mr. COLLINS.   I think providing a payment for energy price increases that would affect farmers like they affect every other business in America, like every other household in America—would be unprecedented. I think that would be unprecedented. Certainly, in the disasters that you spoke about, we did provide assistance. And those were focused on agriculture and on crop losses; and they were special, localized, specific disasters. We face a $5 billion increase in energy costs in agriculture this year. We are predicting next year we will face a $2 billion increase in interest costs. Interest is an input just like energy is an input. So how do you distinguish covering interest rate increases from energy increases, when this would be a national impact that affects everybody; not just unique to agriculture?

 

DANIEL T. KELLEY, National Council of Farmer Cooperatives, Normal, Illinois, on behalf of the AG Energy Alliance 

 

U.S. agriculture and related agribusinesses use natural gas for irrigation, crop drying, food processing, crop protection, and nitrogen fertilizer production.

 

Since 2002, 36% of the U.S. nitrogen fertilizer industry, which uses natural gas as a raw material, has been either shut down or mothballed. According to the U.S. Department of Agriculture, farmers’ fuel, oil, and electricity expenses have increased from $8.6 billion to $11.5 billion, from the period 1999 to 2005. Over that same period, fertilizer expenditures went from $9.9 billion to $11.5 billion. Combined, these expenditure increases represent a $4.5 billion decline in U.S. farmers’ bottom line over that 6–year period. The U.S. chemical industry has been especially hard hit by high energy prices, since natural gas is needed as a feedstock. Its natural gas costs increased by $10 billion since 2003, and $40 billion of business has been lost to overseas competitors, who pay much less for natural gas. Chemical companies closed 70 facilities in the United States in 2004 alone, and at least 40 more have been tagged for shutdown. Of the 120 chemical plants being built around the world with price tags of $1 billion or more, only one of those is being built in the U.S. Our Nation’s current natural gas crisis has two solutions: to increase supply; and second, to reduce demand. The challenge is to find ways to balance our Nation’s dwindling available supply of, and rising demand for, natural gas.

 

Congress can adopt measures to ensure potential Federal lands and Outer Continental Shelf areas are open for leasing; that leases and permits are issued promptly; that the appropriate tax and royalty policies are in place; and that the necessary pipeline infrastructure is available to bring supplies to market; while leaving behind as small an environmental impact as possible. The agriculture community believes that it is strategically critical for Congress to remove these production barriers now, to provide new sources of natural gas and oil supplies.

 

RICHARD CALHOUN, VICE PRESIDENT, GRAIN AND OILSEED SUPPLY CHAIN—NORTH AMERICA, CARGILL INCORPORATED; ON BEHALF OF THE NORTH AMERICAN EXPORT GRAIN ASSOCIATION, AND THE NATIONAL GRAIN & FEED ASSOCIATION

 

The transportation system in the United States has for many decades been one of the true competitive strengths of U.S. agriculture. For a number of reasons, this asset has turned from a potential strength to a potential weakness. Higher energy costs, congestion on railroads and highways, lack of investment in modernizing and maintaining the inland waterway system, as well as the recent storm-related problems, are combining to sharply escalate the costs of moving agricultural products to market.

 

The U.S. transportation system serving agriculture, including barges, railroads, and trucks, was running at virtually full capacity at the time Katrina struck the United States. The loss in transport capacity from that storm proved how vulnerable the U.S. is to such disruptions.

 

Barge transportation is 2.5 times as fuel efficient as rail movements, and almost nine times as efficient as trucking product. So as energy is likely to remain expensive, and energy conservation is a national goal, the time is nigh to begin seriously investing in modernizing the commercial navigation system.

 

 

  1. NEAL ELLIOTT, PH. D., P.E., INDUSTRIAL & AGRICULTURAL PROGRAM DIRECTOR, AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY

 

America, I would say, is in an energy straitjacket right now.  It will take several years, if not longer, to make significant expansion in energy resources. However, there is one resource that is available to us today, and that is energy efficiency and conservation. This is a resource that we can bring to the market both quickly and cost effectively. And we have seen several examples of those in recent years. In California and New York in 2001, energy efficiency and conservation played a major role in reducing demand and rebalancing energy markets; which avoided major economic losses.

 

RYAN NEIBUR, ROCKY MOUNTAIN FARMERS UNION, BURLINGTON, COLORADO.   The price of natural gas has increased 215 % in the last 3 years. This increase has raised my cost of irrigation per crop year from $50 an acre in 2003, to $158 expected in 2006. At this rate, farmers will not be able to afford irrigation, and will be forced to dry-land farm in an area that has been in a drought for 5 years. In my situation, dry-land farming irrigated ground is not an option with my bank.

 

Natural gas is the main ingredient used to make anhydrous ammonia and liquid nitrogen. In 2003, we paid $295 a ton, compared to $495 a ton in 2005. In the production of our corn crop, this price increase translates into a cost-per-acre change of $37–per-acre in 2003, to $62–an-acre in 2005; almost doubling the cost.

In December 2003, I paid $1.10 a gallon for farm fuel. In October 2005, I paid $2.85 a gallon, for the same farm fuel; an increase of over 155 percent. On my farm, fuel expense has gone from $60,700 in 2004, to over $135,000 in 2005. If you put this into a per-acre basis, it is extremely scary. Fuel cost for harvesting corn in 2004 was costing $9.80 per acre. In 2005, fuel cost for harvesting this year was over $22 per acre. Remember, the price of corn has not increased; nor has the yield. Farmers and ranchers are in a situation that does not allow us to pass on these additional costs as a surcharge; which other industries, such as truck lines and airlines, are able to do.

As a farmer, I have no means by which to pass on the higher costs of energy. And it seems that Congress should consider approving some type of mechanism to help farmers and ranchers offset these higher costs.

NFU has been a longtime advocate for renewable fuel standards and renewable bio-based fuels. And we believe that more efforts need to be made to produce fuel and energy from our farms.

[ Scorecard: energy dependence 3 times ]

 

 

 

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