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Are the days of cheap oil behind us?

By Marilyn Bay Wentz

Rising fuel costs, now at 40-50 cents above 12 months ago, are expected to put a damper on the hopes of farmers and ranchers to have a profitable production year. U.S. Department of Agriculture Economic Research Service data from several years ago put energy’s percentage of product costs at 15 percent.

According to a leading Minnesota farm publication, the average fuel cost to produce one acre of corn in 2003 was $10.33. In 2005, the fuel cost is expected to average about $16 per acre for corn production. This does not account for the higher fertilizer, pesticide, drying and transportation costs. According to the article, some farmers are increasing their use of genetically-modified seeds to reduce chemical costs. Others are using more manure to reduce the money spent on chemical nitrogen.

In Rocky Mountain Farmers Union (RMFU) states, most corn is raised using irrigation, again increasing production costs. Surprisingly, despite fairly extensive searches on the Internet, the Minnesota information was the only source found that had calculated the increased cost of production for the current rise in fuel prices. In fact, there has been an eerie silence on the subject that normally has consumers, truckers, farmers and other professions relying heavily upon fuels up in arms about such large price spikes.

Perhaps it is because consumers have the choice of changing to cheaper vehicles, carpooling or taking public transportation. Trucking companies and manufacturers will find a fairly sympathetic ear when they explain to their customers that they must raise their prices due to the rise in fossil fuel costs. Yet, as all in the business of production agriculture know, farmers and ranchers are price takers, not price setters.

So, are producers stuck? Is there nothing they or Rocky Mountain Farmers Union can do?

One response could be to ask Washington policymakers to call for an investigation of fuel prices. We would likely make the same points we have hammered away at before, including questioning record earnings by petroleum companies while the nation faces a fuel price crisis. While not ruling this out, producers cannot expect such an inquiry to make significant or lasting changes.

Rather, consumers and producers should seize this opportunity to push forth the renewable energy agenda in earnest. So far, policymakers have played little more than an appeasement game with renewable energy development. Legislation has provided tax incentives for developers of renewable energy, but it is still treated as a fringe industry. Federal and state policies need to support development of renewable fuels, including locally-produced and distributed ethanol and wind energy generation, with the zeal that it could be the only viable source of energy within a decade.

RMFU supports a bill introduced in April to the U.S. House that would more than double the production and use of domestic renewable fuels including ethanol, biodiesel, and fuels produced from cellulosic biomass. It is identical to bipartisan legislation that was introduced in the U.S. Senate in March and creates a comprehensive Renewable Fuels Standard (RFS) with the goal of producing 8 billion gallons by 2012.

Small-scale, locally-produced energy and food is expected to become increasingly important as energy costs rise.

According to Wilderness Publications (www.copvcia.com), 400 gallons of oil equivalents were expended in 1994 to feed each American. The breakdown is as follows: 31 percent for manufacture of chemical fertilizer, 19 percent for operating field machinery, 16 percent for transporting commodities to elevators or processing sites, 13 percent for irrigation, 8 percent for raising livestock but not including production of feed, 5 percent for pesticide production, 5 percent for drying, and 8 percent for other activities. This does not include energy costs for packaging, refrigeration, transportation to retail outlets, and household cooking.

Data cited in “Food, Land, Population & the U.S. Economy” shows that between 1945 and 1994, energy input to agriculture increased four-fold while crop yields only increased three-fold. Since then, energy input has continued to increase without a corresponding increase in crop yield. Now, due to soil degradation, increased demands of pest management and increasing energy costs for irrigation, modern agriculture must continue increasing its energy expenditures simply to maintain current crop yields.

Total fossil fuel use in the United States has increased 20-fold in the last four decades. Americans consume 20 to 30 times more fossil fuel energy per capita than people in developing nations. This makes it easy to understand how even the slightest improvement in economic position for people in China and India, which respectively have populations four and three times that of the United States, are beginning to result in tremendous surges in demand of fossil fuels.

Such is the position in which we find ourselves in 2005. Imagine the increase in demand and corresponding increase in costs of fuel if China, India or other emerging super economies consume even half the fuel Americans use per capita.

In a five-page essay written this March when oil reach $55 per barrel, James Howard Kunstler asserts that the days of “cheap” oil are behind us. He envisions (nearly) a return to horse-and-buggy days with major economic and social change: “Wal-Mart’s ‘warehouse on wheels’ won’t be such a bargain in a non-cheap-oil economy. . . . America will have to make other arrangements for the manufacture, distribution and sale of ordinary goods. They will probably be made on a ‘cottage industry’ basis rather than the factory system we once had, since the scale of available energy will be much lower.”

According to Kunstler, U.S. oil production peaked in 1970 when the United States produced 11 million barrels a day. In 2004, the United States produces a little more than 5 million barrels a day, yet consumes 20 million barrels a day. Sources quoted by him predict that globally, oil production will peak between 2005 and 2010.

Once cheap oil is gone, Kunstler sees Americans and the goods they consume traveling far less, “The successful regions in the 21st Century will be the ones surrounded by viable farming hinterlands that can reconstitute locally sustainable economies on an armature of civic cohesion. Small towns and smaller cities have better prospects than the big cities. . .”

While the dire circumstances outlined in Kunstler’s essay are doubtful, which can be read in full at www.rollingstone.com or www.copvcia.com, most can agree that the days of cheap and abundant fossil fuel are behind us. However, producers would be wise to devote themselves to making changes in the way they produce and market food. While a multitude of research is available to aid in the technical aspects of such changes, suffice it to say that producers using more fuel efficient equipment, fertilizing with their own manure, and selling directly to consumers will have a leg up if the price of oil continues to climb as it is expected to do.

Research done in 2001 by the Leopold Center for Sustainable Agriculture at Iowa State University suggests changes to be made by consumers, producers, educators and policymakers to reduce energy used in food production. At the time the research was conducted, the concern was more environmental than economic, but with the very real probability that cheap oil days are behind us, should propel us to focus on local food and energy production systems.

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