Rising Energy Costs Impacting U.S. Agriculture

From: THE AGRIBUSINESS EXAMINER
April 7, 2005, Issue #401 Monitoring Corporate Agribusiness From a Public Interest Perspective

EDITOR\PUBLISHER; A.V. Krebs
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RISING ENERGY COSTS CREATING HAVOC WITHIN AGRICULTURE

BARBARA HAGENBAUGH, USA TODAY: Jack Vessey farms 7,000 acres in California's Imperial Valley. His main worry isn't the weather or global competition. These days, his top concern is rising energy costs.

"It gets very scary," says Vessey, a fourth-generation farmer.

The U.S. Department of Agriculture estimates farmers this year will pay $8.2 billion for petroleum, up 21% from two years ago. Adding in the cost of fertilizers and pesticides, which are derived from petroleum and natural gas products, and electricity, farmers are expected to pay more for energy-related items for the third consecutive year.

"It's going to really wreak havoc within agriculture," says Troy Bredenkamp, director of congressional relations at the American Farm Bureau Federation. He notes that unlike in the past few years when agriculture prices were rising, prices farmers receive for their goods are expected to fall this year, giving them little opportunity to recover the added costs.

The USDA forecasts crop-production income will drop more than 15% in 2005 after rising more than ten percent last year. Livestock income is also expected to fall this year after jumping in 2004.

"We see really no silver bullet," Bredenkamp says. "It's going to be a tough growing season."

Greg Davis, general manager at Nurserymen's Exchange, which grows indoor and outdoor plants in Delray Beach, Florida, knows that firsthand. His firm turned off the propane heaters in their greenhouses over the winter, and a large number of plants died in what turned out to be a colder-than-normal season.

"We basically threw the gas heaters in the Dumpsters because we can't afford to run them," he says, noting he is now scrambling to meet orders. Energy prices "are just eating us alive."

Vessey, who has already picked and shipped much of his lettuce, spinach, broccoli, cauliflower and cabbage this year, says not only is it costing him more to fill up his trucks and tractors, but his watering costs have risen because his irrigation system runs on diesel. Even the cellophane he uses to wrap his cauliflower and lettuce costs more these days because it is a petroleum-based product.

He is also paying more to ship his products and says at times trucking costs are higher than prices he is offered for his produce. But he and other farmers say they cannot raise prices, meaning consumers are unlikely to see higher grocery and restaurant tabs.

Says Keith Nilmeier, who farms 500 acres of oranges, grapes, peaches, apricots and nectarines in Fresno: "Everybody (else) can usually pass on what we call a fuel surcharge. ... In farming, everything you do is on supply and demand." [ April 3, 2005 ]