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AgMag BLOG

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For Farmers, Expected Costs of Climate Bill Are Still Minimal

Friday, December 4, 2009

In October, EWG released a report that questioned the misguided claims made by farm lobby organizations and their patrons in Congress who are arguing that climate change legislation would cause devastating increases in the costs of production. Crying Wolf clearly demonstrated that any increases in farmers' production costs would be minimal and would be lost in the background noise of annual swings in income caused by yield variation, crop prices and the cost of seed and chemicals -- a small price to pay to protect agriculture from the crippling droughts, volatile weather and increased pest and disease outbreaks expected as the planet warms.

Crying Wolf based its analysis on a study by USDA economists in a “Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture.” (pdf) EWG found, and reported in Crying Wolf, that the cost increases the agricultural community was shouting about would be far less per acre than the price of a single bushel of grain.

The wolf at the door turned out to be a poodle.

Now there is new data that bolsters that case. On Dec. 2, 2009 USDA Chief Economist Joseph Glauber testified before the Subcommittee on Conservation, Credit, Energy and Research of the House Agriculture Committee. He described a further economic analysis that refined and expanded on USDA's preliminary estimates. Dr. Glauber’s testimony makes it clear that the costs that a cap-and-trade bill would impose on agriculture are still closer to pocket change than to the devastating increases claimed by farm organizations and their Congressional patrons.

The new USDA analysis again focuses on the impact of higher energy prices on farmers' cost of production. The new wrinkle is that USDA included two estimates of increased energy costs: one by the Environmental Protection Agency (EPA) and another by the Energy Information Administration (EIA). The EIA estimates are about double EPA's, largely because EIA assumes that the emission allowances that industries would buy under a cap-and-trade bill will be twice as expensive as EPA projects.

Yet even when we use EIA’s much higher estimates of energy prices, the rise in the cost of farm production is almost undetectable compared to what it costs farmers to produce a crop now -- without a climate bill in place.

Picture 12

Using the EIA’s energy prices, the increase in per-acre production costs ranges from 0.8 percent for upland cotton to 1.7 percent for wheat and rice. Using EPA’s more conservative estimates, the cost increases range from 0.3 percent for upland cotton to 0.7 percent for rice.

Moreover, the estimated production cost increases per acre for most crops are still less the price of a single bushel of grain for every grain crop studied except corn and sorghum -- even using EIA’s higher energy price assumptions.

Table 1:  Losing one bushel of grain would cost most farmers more than the climate bill
  What the Climate Bill

 

Costs Per Acre

What Farmers Get

 

for One Bushel

Yield Increase Needed to

 

Compensate for Cost Increase

Crop EPA Scenario EIA Scenario   EPA Scenario EIA Scenario
Corn
$1.44
$4.72
$3.72
0.2%
0.8%
Sorghum
$1.52
$3.71
$3.32
0.7%
1.7%
Barley
$0.85
$2.41
$3.92
0.3%
0.9%
Oats
$0.69
$1.97
$2.34
0.4%
1.3%
Wheat
$0.80
$2.31
$5.41
0.3%
1.0%
Soybeans
$0.55
$1.43
$8.72
0.1%
0.4%

 

Using EIA's energy prices, the $4.72 per acre increase in the cost of corn production is one dollar more than the $3.72 USDA predicts farmers will receive for a single bushel of corn. The projected price of a single bushel of soybeans ($8.72) is six times higher than the $1.43 per acre increase in production costs.

Whether you use EIA’s or EPA’s more conservative estimates of energy price rises, one other thing is clear. The commodity crop subsidies farmers will get between 2012 and 2018 far exceed any estimate of what the climate bill might cost them. USDA predicts that corn farmers will get about $2 billion a year in subsidies, 5-to-16 times the annual cost of the climate bill. Upland cotton producers will get a little more than $1 billion a year in subsidies, 25-to-64 times more than the annual cost to them of the climate bill.

Picture 13

Finally, the new USDA analysis indicates that farmers are likely to receive an economic shot in the arm, to the tune of $22 billion a year, from the income they would earn by selling carbon credits to utilities and industry under a cap-and-trade system.

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