Energy crisis has agriculture gasping First it was El Nino. Then it was La Nina. Now it's "Hay Caramba!" Translated loosely: "Good gracious...holy mackerel...where did that freight train come from?"
California and Arizona agriculturists went into a state of shock this winter as energy costs soared to dizzily unexpected heights in the two agricultural states. Low commodity prices pale in comparison to the economic disaster farmers are facing from altitudinous diesel, natural gas, propane and electricity prices, according to farmers and others.
"Farmers figure on a $1,000-per-acre crop budget, energy costs represent 3 to 7 percent," said Earl Williams, president of the California Cotton Growers and Ginners Association, Fresno, Calif. "Energy costs have escalated to where energy now represents three and four times that."
"We saw an energy cost increase coming, but no one even imagined we'd see natural gas prices reach 10 to 20 times what they were a year ago," said Mark Borba of Borba Farms in Riverdale, Calif. "Diesel prices increased fourfold and propane went from 53 cents in October to $1.22 in late December."
Prices came down in January, but they are still well above a year ago.
Open market natural gas prices reached a level this winter where the cost to pump water in Borba's area was $500 to $600 per acre with a natural gas-powered engine. That is 10 times the normal cost.
"The farmers I represent are facing economic disaster," said Williams, who is growing increasingly frustrated with no response from legislators and regulators.
"While the usual suspects of tight supplies, increased demand and limited storage have already raised their heads, none can account for the outright pillage of the affected industries," said a frustrated Williams.
"They tell us there is no shortage - that there is diesel fuel available in Los Angeles and elsewhere. But, it is not available in areas where farmers are," Williams said. "Shortages or not, we have a crisis in California agriculture, and farmers need relief."
Here are just a few examples of the economic fallout:
- Food processors are shutting down because they cannot afford energy costs. A winery, flower nursery and paper mill have already shut down due to the high cost of natural gas and more are sure to follow.
- Fertilizer prices are soaring. UN 32 prices already have reached $240 per ton vs. $170 early in the fall.
- Natural gas-fed fertilizer manufacturers are shutting down, selling their contracted natural gas for two and three times what they paid for it, gaining far greater profits from gas sales than they could glean from selling fertilizer. This is expected to create major shortages of fertilizer this spring.
- The cost to dry a cotton bale at the gin has gone from 73 cents per bale in 1997 to more than $15 per bale today. Williams said many gins on natural gas would not even open next season unless prices drop dramatically. Many would not have opened this season had they known the height that the cost natural gas would reach. Growers are already looking to switch to gins using propane.
- Power costs to process butter, cheese and powered milk have increased as much as tenfold this winter, and dairymen are asking for an emergency price increase in milk process to offset that.
- California Tomato Growers Association estimates it takes 45 gallons of diesel to grow and harvest a processing tomato crop. A year ago fuel cost would total $31.50. Based on diesel prices in December, that reaches $67.50
"The increase in energy prices are extremely traumatic for all segments of agriculture - from the grower to the retail supplier to the processor," said Renee Pinel, director of government affairs for the new California Plant Health Association, the alliance of the California Fertilizer Association and the Western Crop Protection Association.
The domino effect is also affecting financing, according to Pinel. "Growers are having a hard time getting production loans for next year because bankers cannot see a profitable bottom line with low commodity prices and escalating energy costs," she said. Loans normally secured in November are still unfunded.
Borba can testify to that. "We have talked to every bank in the central valley over the past 18 months - from the biggest to the smallest, and everyone is happy to talk to you, but they say until they can get their arms around what they have in the wake of the 2000 season, they don't want any more ag loans," he said.
Financing from insurance companies is non-existent, said Borba, leaving commodity buyers as the lender of last resort. "And many of them are oversubscribed.
"Right now it is hunker down and hang on time," said Borba.
Daniel Burns of the diversified San Juan Ranches farming operation in Merced County, Calif., said the "picture is real bleak right now. We have been trying to figure out what commodity to grow to break even. We worked on our budgets in November deciding what to do. Now with fuel prices going up like they have just in the last month, I think I need to go back and look at everything again."
All the processors (gins and tomato processors) Burns relies on are looking at higher energy costs in 2001, and that will reduce his return on all crops.
Arizona Cotton Growers Association president Wiley Murphy, who farms in Pima County, Ariz., said his fertilizer costs increased 40 percent last year and diesel is up almost 60 percent.
Farm organizations have been pleading with regulators and politicians for relief. They want the California Environmental Protection Agency to temporarily allow non-CARB diesel fuel into California, and they are asking Gov. Gray Davis for a tax break on diesel until prices fall. So far there has been no response.
California is the only state in the nation where a special, more expensive, low-pollution diesel fuel is required. Arizona is looking at requiring the same fuel there in an effort to reduce pollution, but Arizona Cotton Growers Association successfully led a fight to head that off for now.