Energy Costs

Energy Costs – Historically changes in cost of production have been due primarily to changes in the cost of land. More recently farmers have been especially hard hit by sharp increases in fuel prices because of their extensive use of oil and gas products in agricultural production. Agriculture already has a low return on investment and equity when compared to many sectors of the American economy, so volatile swings in energy and other input costs can drastically alter farmers’ net revenue. USDA’s projection for farmers’ expenditures for fuels and oils, electricity, fertilizer, and pesticides in 2007 is $41.0 billion, up $4.1 billion from 2006 or 11 percent, and up $6.9 billion or 23 percent from 2001. That equals a decrease in net cash income of about 10 percent. 

Increased energy prices, especially fuel prices, immediately impact farmers’ costs of production. Even though farmers are more energy efficient than ever before, spikes in energy costs hit particularly hard their already tight profit margins. But when considering the impact of higher energy prices on agriculture, it is also important to remember that the amount of energy used in agriculture is significant beyond the traditional gas and diesel for vehicle and machinery use. They use heating oil, natural gas, propane, kerosene and/or electricity to heat or regulate temperature in their hog or chicken facilities and dry their crops. Even pesticide costs are directly related to petroleum. As a general rule, it takes the equivalent of one gallon of diesel fuel to make one pound of active ingredient of pesticides. 

Farmers are limited in what they can do to mitigate the effects of higher energy prices. When and where possible, producers are limited to employing different production strategies, such as reducing field operations by switching from conventional tillage practices to reduced till, adjusting fertilizer application rates, changing the timing of fertilizer applications and using animal manure and green fertilizer. Unfortunately, however, for the foreseeable future the costs of energy will remain relatively high and it is in the nation’s best interest to deal with how to adjust to the increased prices.

NASDA recommends that government support for alternative fuel sources to fossil fuels continue, focusing on the use of ethanol, biodiesel and biomass production. Further, NASDA urges the government to keep a high priority for research related to bioenergy and biobased products. NASDA also urges USDA to complete the rulemaking on labeling regulation, to increase testing and labeling of biobased products and to expand awareness of the BioPreferred program. In addition, NASDA supports continuation of USDA’s Biodiesel Fuel Education Program.

In the interim period, there should be a renewable fuels content standard in energy legislation, and preferential tax treatment for ethanol, such as in the small ethanol producer tax credit.  Congress should also provide funds to continue the USDA Commodity Credit Corporation Bioenergy Program, which provides production incentives for increases in production of ethanol and biodiesel made from agriculture and forestry crops and associate waste materials, including animal manure and livestock/food processing waste. Specifically, the Biomass Energy Reserve Program establishes a program to encourage the production of feedstocks for cellulosic ethanol and other energy production and provides for five year contracts for producers to grow dedicated energy crops. It provides an incentive for producers to harvest, store and transport biomass to bioenergy facilities. It also helps farmers learn how to plant and cultivate these feedstocks in a cost-effective manner. NASDA supports the Forest Bioenergy Research Program that creates a program to address the specific issues facing the use of woody biomass for bioenergy production. Renewable fuels such as ethanol and biodiesel are the cornerstones in assisting American agriculture in terms of the use of its product and energy requirements.

NASDA supports the renewable biomass definition as passed in the Food, Conservation, and Energy Act of 2008 (Farm Bill). In order to ensure the future development and expansion of our nation’s biomass industry, it is critical to allow for a comprehensive range of potential feedstocks.

As directed by the 2008 Farm Bill, the following products may be utilized as biomass:

• Materials that are byproducts of preventive treatments (e.g., trees, wood) that are removed to reduce hazardous fuels, to reduce or contain disease or insect infestation, or to restore ecosystem health; would not otherwise be used for higher value products; and are harvested from National Forest System land or public lands in accordance with public laws, land management plans, and requirements for olddâ€growth maintenance.

• Any organic matter that is available on a renewable or recurring basis from nonnâ€Federal land or land belonging to Indian tribes, including renewable plant materials (feed grains, other agricultural commodities, other plants and trees, algae), waste material (crop residue, other vegetative waste material including wood waste and wood residue), animal waste and byproducts (fats, oils, greases, and manure), construction waste, and food waste/yard waste.