Hearing highlights potential for rising input costs

Dec 4, 2009
by DTN
Hearing highlights potential for rising input costs

Lawmakers divided largely along party lines last Wednesday at a House hearing on agriculture and climate change while USDA’s chief economist tried to emphasize that while climate legislation would increase costs to producers, those expenses would be gradual over several decades.

The House passed its climate legislation last June, but a comparable bill stalled in the Senate and will not be debated until next year. Some House members also are becoming increasingly skeptical of the legislation and its impacts, likely making it harder for a final bill to clear the House.

Last Wednesday, the House Agriculture Subcommittee on Conservation, Credit, Energy and Research began two days of hearings on climate change and the impact on agriculture. Testimony on Wednesday focused heavily on potential costs, while last Thursday’s hearing was set to examine potential new income.

In a conference call with reporters Wednesday, Secretary of Agriculture Tom Vilsack gave a preview of US- DA’s updated analysis on the House climate bill. The study is comparable to data released by USDA in July showing that there would be modest increases in expenses over time, but potential income from carbon offsets and bioenergy would outstrip the increased costs.

Vilsack said farmers could gain as much as $20 billion in farm income from such sources.

“Our analysis finds that even with a conservative assumption, it’s a net gain for agriculture,” Vilsack said.

The House bill, the American Clean Energy and Security Act (ACES), would reduce carbon emissions 17 percent by 2020 and up to 83 percent by 2050. The bill exempts agriculture from emission caps but creates an agricultural carbon offset program that would be run by USDA.

USDA’s analysis broke out different crops, livestock and regions of the country, indicating that crops in regions such as the southeast could face higher costs than the Midwest, for instance.

In the hearing, Republicans gave a blistering review of what would be expected under the legislation, with Rep. Bob Goodlatte R- VA, calling ACES the “Agriculture Can’t Exist Standard.”

“Cap and trade has the potential to devastate the agricultural community with higher input prices and lower farm income,” Goodlatte said.

Further, Goodlatte highlighted analysis showing tens of million of acres could be converted from crops to forestry causing “artificial competition between food, feed, fuel and now carbon.”

Speaking to reporters, Vilsack said USDA models show only minor increases in food prices over time.

Rep. Jerry Moran, R-KS, said the climate bill is “the most damaging piece of legislation passed in my time in the House of Representatives as far as agriculture.”

Moran expressed concern that food processors could leave the U.S., and commodities would be exported only to return to the U.S. as processed foods.

The House bill provides free pollution allowances until 2025 for “energy-intensive, trade-exposed” industries. Because of that, US- DA’s analysis assumes the fertilizer industry would receive allowances related to the price of natural gas. Testifying for USDA, the department’s chief economist, Joe Glauber, said there is no question agriculture is energy intensive and will be affected. But responding to a question about how farmers deal with higher costs, Glauber said, “They are very gradual impacts, and for the next 12 to 15 years, they are very small.”

In his press call, Vilsack said that even though the fertilizer allowances would sunset, “A fair assumption is there would be significant research done on fertilizer through 2025” to make it more efficient for producers.

While the analysis shows minimal cost impacts through 2025, the Environmental Protection Agency (EPA) shows energy price increases of up to 14 percent by 2030 and up to 35 percent higher by 2050. Glauber said the issue then would be how much more energy efficient farmers could become over the next 40 years to compensate for those higher costs.

Most of the models in USDA’s income baseline also show more bioenergy crops for cellulosic ethanol and other bioenergy production.

Democrats pointed out that the EPA is continuing to move ahead with rules to regulate greenhouse-gas emissions, responding to a 2007 Supreme Court ruling. Republicans countered that Congress could simply pass legislation stripping EPA of the authority to use the

Clean Air Act to regulate carbon dioxide.

The hearing also reflected the divide in Congress over belief in manmade climate change.

Rep. Tim Walz, D-MN, asked why USDA hasn’t provided more analysis on what will happen to crop production or livestock production with increased temperatures and more volatile weather patterns “give the preponderance of evidence” on climate change. “Are (our) nieces and nephews going to be able to farm if we do nothing?” Walz asked.

“It depends on the crop,” Glauber replied.

A short time later, Rep.

Blaine Luetkemeyer, R-MO, asked why USDA was spending time studying climate change, which is based on “unsound science.”

“Why are you pursuing this at all?” Luetkemeyer asked. — DTN