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Experts Ponder Climate Change Impact in Agriculture

posted on July 17, 2009

Hello, I'm Mark Pearson. Friday marked the one year anniversary of the highest retail gasoline prices in history. Prices have moderated since then, but there was evidence this week that higher energy prices rippled through the economy in June.

According to the Commerce Department, retail sales rose 0.6 percent in June. Normally that would bode well for the economy, but the gains were tempered by an 18.5 percent gain in gasoline sales reflected in last month's short-lived price spike.

Meanwhile, a concurrent 1.8 percent rise in wholesale prices marked the largest gain since November of 2007. It also fanned investor fears over higher prices even though economists said June's energy spike was NOT the beginning of a dangerous bout of inflation.

Prices at the pump today are about 40 percent lower than the all-time high of $4.11 per gallon reported by AAA last July. But, many economists are concerned that meaningful recovery of the broader economy will be hampered by curtailed consumer spending due to rising unemployment.

And with the nation's jobless rate at a 26-year high of 9.5 percent, the labor department announced Friday that unemployment exceeded 10 percent in 15 states and the District of Columbia last month. The rate in Michigan surpassed 15 percent, earning the "Wolverine State" the dubious distinction of being the first state to hit that mark since 1984.

While double-digit unemployment grabs the attention of just about everyone, many rural Americans also are concerned about proposed climate change legislation in Washington. And this week, experts debated the economic impact on agriculture.

Experts Ponder Climate Change Impact in Agriculture

Only weeks after the U.S. House passed landmark climate change bill, American agriculture is still coming to grips with the potential impact of cap and trade. A bevy of opinions range from an optimistic Secretary of Agriculture to the American Farm Bureau's dire warnings of what it calls "seriously flawed" legislation. But new research from a pair of Midwestern universities may shed light on the production impact of higher energy costs for farmers and ranchers.

Bruce Babcock, Iowa State University Economist: "For a typical Iowa corn and soybean producer... somewhere between $5 and $10 per acre."

Iowa State University Economist Bruce Babcock compiled the input costs of nitrogen fertilizer, phosphate, potash, lime, diesel, and propane under the House climate legislation. Babcock concluded that an average Corn Belt farmer would pay five-to-ten dollars more per acre given current crop rotation patterns. The ISU study reflected a 1.5 percent increase in agricultural production costs by 2020. A separate study from the University of Missouri pegs the increase at 3.2 percent by 2020.

And the American Farm Bureau Federation claims cap-and-trade legislation could cost corn farmers as much as $33 more per acre by 2050.

Rick Krause, AFBF Regulatory Specialist: "For farmers and ranchers, fertilizer costs are going to increase because natural gas prices are expected to increase. And fuel prices are going to increase as well."

Comparing Farm Bureau's estimates to his own, ISU's Babcock says the results are actually "comparable" because he only included "most" inputs and measured Co2 costs at 2020 levels – not the projected higher Co2 prices of 2050.

Despite some discrepancies between industry analysis, Babcock stresses that consumers – and not farmers – will bear the brunt of higher input costs.

Bruce Babcock, Iowa State University Economist: "If the cost of producing food or other items goes up then the consumer prices go up to. I think farmers will be largely compensated for any increase in cost by an increase in the price of their commodities. A caveat is if other countries have an increase in production costs."

Climate legislation is currently parked in the U.S. Senate as lawmakers turn most of their focus towards health care policy. But Agriculture Committee Chairman Tom Harkin of Iowa hinted this week he may insert language in the Senate climate bill to allow blends of as much as 15 percent ethanol in American gasoline. The move could supercede current EPA evaluations of increased ethanol blend rates and could be a boon to biofuel producers. The Senate Agriculture Committee is scheduled to discuss the rural impact of climate legislation next week but a significant push on final passage isn't expected until after the August recess.


Tags: agriculture climate change global warming news pollution