LVEA in Action                                                                                                                                                 Summer 2004 ___________________________________________________________________________________________   

Farmers struggle with energy prices

American Farm Bureau Federation economist, Terry Francl, reports that through April, the price of energy-based inputs on farms had increased by $2 billion.

"The resulting $2 billion increase will reduce farmers' net cash income by the same amount—over 3 percent," Francl said.

The cost of fuel and oil has risen 12 percent and the cost of fertilizer has risen by 6 percent in the last year.  An additional $1 billion in cost of manufactured products will have to be absorbed by farmers' incomes if costs continue to rise through the summer and fall, Francl said.

AFBF public policy specialist, Troy Bredenkamp, said, "While commodity prices have increased by what would seem to be a profitable level, it's quickly eaten up by higher input levels from the energy sector,"

Diesel fuel, the primary fuel used on farms, has increased an average of 16 cents per gallon from last year. Oil analysts do not predict a reduction in cost anytime soon.

It is projected by AFBF analysts, that United States annual farm expenses will be up $4.7 billion from last year, while farm net cash income will drop $1.6 billion. The recent costs are in addition to energy costs that have been affecting farm operations beginning in 2003.

Bob Drake, vice president of Oklahoma Farm Bureau, testified before the Senate calling for energy legislation to develop more energy sources.

or more per ton in 2003. Drake added that one farmer in his state reported a $26,000 drop in net income due  to the cost of operating irrigation pumps powered by natural gas in 2003.

Brendenkamp said the current situation with high energy costs should motivate Congress to pass an energy bill.

"Our membership believes this to be a catalyst for comprehensive energy legislation. From a mid- to long-term standpoint, passage would really improve the current supply and demand problem we're seeing," he said.

Bredenkamp said that a release of oil from the Strategic Petroleum Reserve (SPR) to boost supply and reduce prices would have a negligible impact, if any, on fuel prices because the United States has only so much refining capacity.

Although the reserve is nearly at its 700 million gallon capacity, that's still only enough oil to last about a month. AFBF is in opposition to opening the SPR for non-emergencies.

"While a national average gas price of over $2 a gallon is problematic and a pain in the wallet," Bredenkamp said, "it is not a national emergency. And in the event of a real national emergency, we would want to have that reserve there. If Congress really wants to do something to improve energy supplies and prices, it should pass the energy bill."