With gasoline prices nearing $4 per gallon, on Wednesday, both President Obama and the Senate Agriculture Committee addressed rising fuel costs and how best to shape U.S. energy policy.
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Michigan Sen. Debbie Stabenow, Chairman of the Senate Agriculture Committee (who helmed a hearing titled“Evaluating High Gas Prices and How New Rules and Innovative Farming Can Help”) highlighted reports claiming “as many as 600,000 jobs could be at risk because of the recent spikes in gas prices. … High prices are squeezing farmers and squeezing middle-class families who live on tight budgets. … When businesses pay more for fuel, they’re unable to hire and retain employees – that’s a dangerous place to be in a fragile national economy.”
Certainly, continued Stabenow, “supply and demand plays a significant role (in the higher prices). But we also know it isn’t quite as straightforward as that. … We need a real American energy policy and agriculture has a very important leadership role to play.”
Pointing to Obama’s energy-related speech, Kansas Sen. Pat Roberts, ranking member, expected the president to “follow up on what he said earlier this month while speaking in Brazil at a business summit. He explained how the United States is eager to help expand the Brazilian offshore oil development.”
Roberts – claiming his words weren’t “pejorative or partisan” but “just fact” -- described Obama’s approach as “rather a paradox of enormous irony that, with an estimated 86 billion barrels of oil reserves within the United States, the president would be offering up technology and support for competitors abroad. All the while, we have real problems with production here at home.”
Veteran Kansas farmer Stan Townsend, who testified on behalf of the Kansas Farm Bureau, told the committee farming has “not been spared” the effects of higher fuel and input costs. Townsend’s family runs a feedlot and also grows corn, wheat and pinto beans.
“Investors view land as a potential safe haven resulting in land values 50 percent higher than they were just a short time ago,” said Townsend. “In 1988, a new tractor ran $41,000. Today that machine costs $281,000. Back then, the chemicals we use to protect our crops were $7.00 per acre. Today that product is $30.00 per acre. Our NH3 fertilizer cost has more than doubled over the last 12 months despite decreasing natural gas prices.”
Further, “bulk diesel costs nearly 14 times what it did in 1988. That reality has a significant impact on our operation which relies heavily on trucking to transport our products to market. Those freight costs have doubled in the last year specifically related to increasing fuel costs.”
Townsend rebuked those who say ethanol as the sole reason for increasing food costs. “In reality, as a livestock producer, I understand the impact of the increased corn prices. That’s part of the reason we produce the corn we do, it allows us to feed our stock without entering the market to purchase that feed.
“Ethanol has also provided us with the unique opportunity to incorporate the use of high quality DDGs (dried distillers grain) into our feed cycle. Using the co-product is one of the many ways we can mitigate our costs and remain profitable. In fact estimates show that as much as 60 percent of original corn inputs can be returned as DDGs.
Townsend claimed without ethanol added to the fuel mix “each of us would face gas prices 40 to 60 cents higher at the pump.”
Roberts: “Most folks have no idea a tractor can cost over $300,000. Yet, many believe that the high commodity prices will make up for the rising costs of fuel and inputs. How do you manage these rising costs and keep your balance sheet in the black?”
Through a lot of practice, replied Townsend. “We went through 10 years of drought – 1997 through 2007. In 2002, we had (just over) two inches of rain. … We’re currently having one of the driest springs we’ve had on record. We face tough conditions most of the time. That makes tough people.”
What about the cost of complying government regulations?
Unfunded mandates “affect all of us,” said Townsend. “One of the biggest right now is we have 36,000 gallons of fuel storage and must build facilities. There is some disagreement on whether we must have a $10,000 engineer per site or whether we can do it with a program from the Internet that” explains the same thing the engineer would do.
“The regulations of dust and spray nozzles and the rest of it – stay where your knowledge is at. In our (area), we raise the dust and there’s nothing we can do about that. We’re spraying our crops and saving fuel.
“I kept hours on my tractors. Prior to strip-till and no-till, we used to produce 1,700 gallons of nothing but waste oil. We’re now down to 300 gallons. Our tractors run (fewer) hours, our equipment is bigger and we’re using more chemicals.
“But we don’t need to be regulated for spray drift. We can control spray drift. We know what we’re doing and if we drift on our farm, we pay for it. There is a consequence so we try not to do those things.”
Townsend, called on many times during the hearing, was also queried on the impact of the expanded 1099 requirement in the controversial health care bill. The provision would require companies to report on any purchases of goods or services of over $600.
“Give us a real-life view of how that will impact your operation – if you have to issue 1099s for all goods and services purchased over $600 during any calendar year,” said Nebraska Sen. Mike Johanns.
Along with the 1099s, Townsend derided the health care legislation in general. The Townsend family takes in “several kids and our goal is to teach them a work ethic. Mama takes one and I take one. We try to teach them how to work, teach them management skills, how to use farmland. We try to develop a better person. If we have to insure those individuals, (such mentoring) would be in trouble.
“We have part-time employees. One, we had to report work on for three weeks. He had a job, took vacation, and came to help us with harvest. I’d love to have him back. But are we going to have to insure him, as well?”
As for paperwork, “I probably could make 20 purchases of at least ($600) in any given day.” Providing a form for each “would be an astronomical problem to keep track of.”
Stabenow asked the panel when large-scale quantities of biofuels from a wide variety of feedstocks will reach consumers. Secondly, “under a 2007 USDA/Department of Energy (DOE) study, it was stated we have the potential to produce 1.3 billion tons of cellulosic biomass per year, which would displace about 65 percent of our oil consumption. … This would make a big difference. What do we need to do?”
“Actually, I think the USDA/DOE estimate is conservative,” replied Bruce Dale, Professor of Chemical Engineering at Michigan State University.“We could have more than that.
“As to when we will do this: we’ll do it when we choose. … The technology is coming along. We’ll do it when we choose to open our fuel markets, when we provide stable policies to allow alternatives to petroleum to go up, and when we can key on the support the necessary research and development to make this industry happen. It’s more a matter of what we choose – I really believe that.”
Almost every state can become a net fuel exporter, said Dale. “We have the land resources, the agriculture knowledge. … Any state with an ag or forestry base can produce its own fuel.”
Ethanol has transformed rural economies in many areas of Nebraska, said Johanns. However, “every time the blender’s credit comes up for renewal (in Congress), it’s a tougher battle. … Is there a point where we start phasing that out and offering a tax credit or something to put the pumps in? The more I roll it over in mind, it seems a wise policy to try to build the marketplace instead of rely on the credit. One of these times, I’m worried it won’t be (renewed).”
A trade group focused on greener energy, Growth Energy has produced a “Fueling Freedom” Plan that talks “about taking a portion of the current incentive to build up the infrastructure and use it to build up blender pumps,” said Jeff Broin, CEO and president of ethanol industry leader POET, who is looking to expand an Iowa biofuel facility’s cellulosic capabilities.“We believe we could get about 200,000 blender pumps put in this country in five years. … Couple that with a requirement for flex-fuel vehicle in addition to government loan guarantees for pipeline. We need some pipeline structure here, as well.
“That could really make the difference and let us go head-to-head with oil. The problem today is we’re dealing with an industry with a 90 percent monopoly. If we could truly open that market, incentives become far less important to the (biofuels) industry.”
Broin also advocated for the continuation of the Biomass Crop Assistance Program (BCAP) “since it’s very important to have stability around government policies in these areas. We’ve been awash in grain in this country for my entire life. I still think there’s still a tremendous opportunity in grain ethanol, as well. In the next 20 years, we’ll double our grain yields. That’s more starch that can go to ethanol and protein for the feed and food markets.”
To provide needed stock, Dale recommended extensive adoption of double-cropping of grasses and legumes on corn and soybean fields. Is such double-cropping possible in most regions of the United States?
Dale admitted it wouldn’t be appropriate for all regions. Researchers have looked “in detail at where it could be done – soil types, rains, and all the factors that go into it. They think you could produce about 200 million dry tons of mostly winter rye and other things in areas of the Corn Belt that get a lot of wet weather.”
As the hearing concluded, Dale pleaded with the committee not to take a short view on biofuels. There is no quick fix.
“I was a new, 22-year-old father when we had the first oil embargo. President Carter said ‘we need to get off foreign oil.’ Every president since has said (the same).
“Now, I’m a 61-year-old grandfather and I’m really concerned my grandkids have a better, more stable economic environment.
“What we must realize is it will take decades to do this. We use about 140 billion gallons of gasoline in this country every year. It will take decades to get to a very large replacement of that. … We must keep going down this path and not allow ourselves to be dissuaded. It will take a long time. … We can do it with cellulosic and other biofuels, but it will take decades.”
To read panelists' statements see testimony.