Energy Costs and Agriculture

Energy Costs and Agriculture

Order Code RL30943
CRS Report for Congress
Received through the CRS Web
Energy Costs and Agriculture
April 24, 2001
Jerry Heykoop
Agricultural Policy Analyst
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Energy Costs and Agriculture
Summary
U.S. agriculture is not an especially energy-intensive industry, but energy does
account for about 6% of farm production costs. (Mining, including oil and gas
extraction, has energy expenses of about 10%, while all manufacturing is at about 2%
— see 1997 Economic Census, and 1999 Annual Survey of Manufactures. U.S.
Census Bureau). Additionally, farming is a highly mechanized industry and requires
timely energy supplies at particular stages of the production cycle in order to achieve
optimum yields. A substantial part of energy use by agriculture is indirect
—embodied in the chemicals applied and machinery used on farms.
Although there are many kinds of farm operations performed in the different
types of farms, nearly all apply technologies that use either a petroleum product or
electricity. Recently, dramatically higher natural gas prices have increased farm
energy costs directly, and indirectly through farmers’ use of fertilizer. Nevertheless,
the relative contributions of energy types vary distinctly, if not dramatically, by type
of farm and product.
The impact of possible oil and/or electricity price rises is potentially greater on
agriculture (especially for field crop production) than on most other sectors, given the
dependence by farming upon petroleum and electricity, and limited scope for fuel
switching. It is to be expected that farmers will, as they have in the past, reduce
energy use to ease the cost impact of price rises. A sustained increase in energy prices
could have an impact on consumer food prices as higher costs are passed on through
the food production/processing industry.
Continued low commodity prices in the farm economy exacerbate the problem
of higher energy costs. In response, legislation has been introduced in Congress to
assist farmers and other industries in dealing with increased energy costs, including
emergency loans and encouraging alternative energy sources.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fertilizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Current Fertilizer Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Farm Income Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Options for Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Food Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 60 (Byrd) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H.R. 301, H.R. 302 (Shows) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H.R. 396 (Pickering) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H.R. 478, H.R. 479, H.R. 480 (Shows) . . . . . . . . . . . . . . . . . . . . . . 11
S. 295 (Kerry) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
H.R. 1010 (Tom Udall) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S. 568 (Sessions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Figures
Figure 1: Natural Gas Prices: Recent Prices and 1998-99 Typical Range . . . . . 2
Figure 2: Ammonia Production Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 3: Ammonia Production Costs at Increasing Natural Gas Prices . . . . . . . 4
Figure 4: Nitrogen Fertilizer Use Among Various Crops . . . . . . . . . . . . . . . . . . 6
Figure 5: Distribution of a Dollar Spent on Food, 1999 . . . . . . . . . . . . . . . . . . 10
List of Tables
Table 1: Index of Prices Paid for Fertilizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2: Nitrogen Fertilizer Available: Percent of Normal Supply . . . . . . . . . . . 7
Table 3: Index of Prices Paid for Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Energy Costs and Agriculture
Background
There is concern that a sustained rise in energy prices may have serious
consequences on energy-intensive industries. Agriculture, like many other sectors,
requires energy as an important input to production. Farming accounts for only 2-3%
of all energy consumption in the United States. (Manufacturing accounts for about
25%, transportation 13%, and mining 2%.)1 However, farming is a highly
mechanized enterprise and requires timely energy supplies at particular stages of the
production cycle in order to achieve optimum yields.
Natural gas prices, particularly, have had financial consequences for agriculture,
with the surge in prices beginning in 2000. On-farm agricultural production requires
the consumption of natural gas (used primarily for irrigation and crop drying) and
electricity. Animal agriculture is affected, with poultry farmers being hit hard with
higher heating costs for their poultry houses. In addition to the direct consumption
of energy on the farm, substantial amounts of energy also are used off the farm to
manufacture two major inputs to production: fertilizer and pesticides. Virtually all
nitrogenous fertilizers used in the United States require natural gas as a production
input, and most pesticides have a petroleum base. Fertilizer production uses
approximately 3% of all natural gas consumed in the United States, and represents a
significant portion of total energy consumed by the farm sector.
Since a large portion of on-farm energy use is for the operation of machinery
used in crop production, agricultural energy consumption tends to vary according to
the level of planted acreage. The impacts of higher energy costs vary widely from
farm to farm:
! Some farmers irrigate from more costly deep wells, others from less costly
shallow wells.
! Some burn a lot of fuel by cultivating often to rid fields of weeds, others make
one herbicide application. Relatedly, some farmers makes several passes over
the land for tilling and planting, while others use no-till during planting.
! Some locked in relatively low prices by contracting early for fuel and fertilizer,
others gambled and hoped prices would drop.
Among farmers, higher energy prices will have greater impacts where irrigation-
related energy inputs are required (i.e., corn, wheat, and cotton in the Plains States).
Rising energy prices likely will have a less severe effect on most specialty crops (sugar
1Analysis of data from the Census of Manufactures, U.S. Census Bureau; and Monthly
Energy Review, Energy Information Administration, U.S. Department of Energy.

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beets, peanuts, and tobacco) than on other major field crops because energy inputs
comprise a smaller portion of operating costs. Among specialty crops, costs of
producing flue-cured tobacco will be most affected because of natural gas costs for
curing the tobacco. According to the U.S. Department of Agriculture’s (USDA)
Economic Research Service (ERS), 1999 energy related expenses for field crops
comprised 24% to 31% of total variable costs. For producers of fruits and nuts,
vegetables, and nursery and greenhouse products, the range was 10% to 15%, while
the range was 9% to 18% for livestock producers. Fertilizer accounted for 64% of
energy expenses, fuels (gasoline, diesel, natural gas, LP gas) 25%, and electricity
11%, for all farm energy-related expenses.2
Natural Gas3
Higher energy costs are reflected especially in natural gas prices, which have
increased several fold over the last year (Figure 1). Prices have come down from their
highs earlier in the year, but remain well above previous year levels and the effects are
being felt by farmers. Increased natural gas prices raise the cost of production aspects
that use natural gas such as for irrigation pumps, crop drying, and heating costs.
Figure 1: Natural Gas Prices: Recent Prices and 1998-99 Typical Range.
Source: Energy Information Administration (Financial Times Energy, Gas Daily).
2Economic Research Service, U.S. Department of Agriculture. Staff analysis. February 13,
2001.
3For a further discussion on natural gas, please see CRS Report RL30815, Natural Gas
Prices: Overview of Market Factors and Policy Options.

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Fertilizer
The production process of fertilizer involves a catalytic reaction between
elemental nitrogen derived from the air, with hydrogen derived from natural gas
(Figure 2). Anhydrous ammonia is used directly as a commercial fertilizer and also
is used as the basic building block for most other forms of nitrogen fertilizers, with
natural gas used as a process gas in the manufacture of other fertilizers from
anhydrous ammonia. Anhydrous ammonia also is used in non-agricultural industries
such as adhesives, plastics, resins, and rubber.
Figure 2: Ammonia Production Process.
CH
+
N
NH
+
CO
4
2
3
2
(Natural
(Nitrogen)
(Anhydrous
(Carbon
gas)
Ammonia)
Dioxide)
Urea
Urea Ammonium Nitrate Solutions
Ammonium Nitrate
Ammonium Phosphates
The rise in natural gas prices has had a severe impact on both the profitability
and operating rate of the U.S. fertilizer industry. By the end of 2000, high natural gas
prices had forced up fertilizer production costs to the point where fertilizer producers
could not cover production costs, according to industry sources. Natural gas makes
up 75-90% of the cost of production for nitrogen fertilizer. One ton of ammonia
requires 34 million British Thermal Units (Mmbtu) of natural gas. At a natural gas
price of $2.19 Mmbtu (the average price during 1999), production costs for a typical
producer are approximately $100 per ton, with gas being about 75% of the cost of
production. At $4.50 Mmbtu, cash costs are $180, with 84% for natural gas. Figure
3 shows the rise in production costs for ammonia as the natural gas price increases.
In early 2000, with natural gas prices at $2.37 Mmbtu, anhydrous ammonia prices
were $105 per ton. When natural gas prices increased to $9.90 in January 2001,
anhydrous prices rose to $360.
With the increased production costs due to higher natural gas prices, producers
were forced to cut back on fertilizer production. Of the 19 million tons of total
nitrogen capacity in the United States, approximately 7.5 million tons were idled in
January 2001, with the remaining capacity operating at reduced levels. As a result,
the industry operated at 54% of capacity, compared with 95% average over the last
10 years. During the summer of 2000, 24% of U.S. nitrogen capacity was closed
because of high natural gas prices. For the first half of FY01, U.S. nitrogen
production is down 13% from year-earlier levels, and approximately 25% below the

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average level for the 1997-99 period. According to The Fertilizer Institute4, July
2000-January 2001 production of ammonia was 20% lower than that of one year
earlier. For the month of January 2001, production of anhydrous ammonia was 48%
less than January 2000 production. Nitrogen inventories were down 18% in January
2001 compared to January 2000.
Figure 3: Ammonia Production Costs at Increasing Natural Gas Prices.
$400
$396
$363
$329
$300
$296
$262
$229
$200
$195
$162
$128
$101
$100
Production Cost per Ton of Ammonia
$0
$2.19
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
Natural Gas Prices ($/Mmbtu)
Source: The Fertilizer Institute.
In the March Index of Prices Paid by Farmers (Table 1), the Fertilizer Index was
at 144, up 3.6% from
Table 1: Index of Prices Paid for Fertilizer (1990-92 = 100)
February (139) and 36%
more than March 2000
Feb 00
Mar 00
Jan 01
Feb 01
Mar 01
(105). Prices were higher
Fertilizer
106
106
134
139
144
for nitrogen fertilizers,
Mixed
108
108
112
113
114
mixed fertilizers, and
potash and phosphate
Nitrogen
101
103
168
177
186
materials. The price index
K & P
116
109
107
109
112
for nitrogen fertilizers,
Source: National Agricultural Statistics Service, USDA. Monthly. Agricultural
particularly, was 75%
Prices.
higher in February 2001,
and almost 81% higher in
March 2001, than respective year earlier levels. For the year 2001, the nitrogen price
index rose 5% in February, and an additional 5% in March.
In some areas of the country, farmers were expected to pay up to 60% more for
fertilizer than a year ago, with prices for nitrogen fertilizers having risen from $87 per
ton to $140. Since November 2000, liquid nitrogen had nearly doubled from $80-100
4The Fertilizer Institute (TFI) represents by voluntary membership, producers,
manufacturers, retailers, trading firms, and equipment manufacturers of the fertilizer
industry.

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per ton to nearly $200 by February 2001. Reported ammonia prices delivered to
Midwest dealers rose from $160 per ton in January 2000, up to $240 in July, and
$350 in December. Prices have changed from $160-195 per ton a year ago to $260-
400 per ton earlier this year (2001).
Natural gas also is used as a process gas when upgrading anhydrous ammonia
to urea. Producing a ton of urea requires 0.58 ton of ammonia and approximately 4.2
Mmbtu of natural gas for processing. Therefore, at $2 Mmbtu gas, production costs
are $80 per ton of urea. At $9 Mmbtu, production costs are over $210. Urea prices
also have shown a tremendous increase. According to various accounts in
newspapers and farming magazines, in 2000, prices ranged from $110-185 per ton,
and have been $220-270 this year.
Domestic producers account for 75-80% of total ammonia supply, 70-75% of
urea, and 95% of urea ammonium nitrate (UAN). Because most of the U.S. fertilizer
demand has been met by domestic production, some have said it will be difficult for
imports to fulfill current demand. A key limitation for imports is infrastructure.
Historically, virtually all the direct application ammonia market has been supplied by
U.S. production with some additional supplies from Canada, while offshore imports
have been used mostly for ammonium phosphate production and in the industrial
market. Consequently, the infrastructure to offload ammonia and move it to the
primary direct application markets is extremely limited, according to industry experts.
The current infrastructure for offloading, storing, and transporting, thus, could create
a practical limitation on the amount of imported fertilizer that can be transported to
farmers.
In addition to delivery delays, farmers face the likelihood of receiving less total
fertilizer nitrogen than they would like to purchase. Additionally, fertilizer nitrogen
may be available only in an unfamiliar form or one they are not optimally equipped to
use.
There are many factors that impact fertilizer use, but application rates and
planted acreage are the most important. Because application rates typically do not
change a lot from year to year, most changes in nutrient use can be predicted from
changes in crop acreage —especially corn acreage.5 Figure 4 shows rates of nitrogen
fertilizer use for various crops. Nitrogen rates typically are much higher for fruits and
vegetables than for field crops. However, due to planted acreage, total nitrogen use
is greatest for corn, as shown. Therefore, much of the recent context of the fertilizer
discussion has been relative to corn plantings and whether corn acreage in the United
States would decrease if producers switched to alternative crops with lower energy
costs.
Energy-input costs per acre for cotton production are nearly as high as those for
corn ($57 vs. $62), but comprise a much smaller proportion of total operating costs
5The Fertilizer Institute, at the annual meeting of the Kentucky Fertilizer and Agricultural
Chemical Association. November 8, 2000. (The Fertilizer Institute represents by voluntary
membership producers, manufacturers, retailers, trading firms, and equipment manufacturers
of the U.S. fertilizer industry.)

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(23% vs. 40%), according to the ERS. Reducing fertilizer and energy costs may
provide an incentive to switch crop acreage from feed grains and wheat, to soybeans
or cotton, which have lower energy costs. This could be an unappealing prospect for
traditional growers of soybeans and cotton, who already are suffering the impact of
low prices and surplus production.
Figure 4: Nitrogen Fertilizer Use Among Various Crops.
Nitrogen Fertilizer Rates by Crop
Total Nitrogen Fertilizer Use by Crop
Soybean
Wheat
Cotton
Corn
Almonds
Orange
Grapes
Potato
Tomato
Lettuce
0
50
100
150
200
250
0
1,000
2,000
3,000
4,000
5,000
Rate (pounds per acre)
Thousand Tons
Source: National Agricultural Statistics Service, USDA, data as compiled by The Fertilizer
Institute.
There have been reports in the press about farmers switching crops (e.g.,
sorghum and sunflowers instead of corn) in order to reduce irrigation needs. Corn
and soybeans typically are grown in rotation (alternate yearly between planting corn
and soybeans) and growing soybeans in consecutive years likely will reduce soybean
yields and increase risk of disease. Additionally, reduced corn production and
increased soybean production will raise corn prices and lower soybean prices.
Therefore, most reports believe it is unlikely that a significant number of acres will be
switched from corn to soybeans.
Current Fertilizer Situation
The supply situation for nitrogen fertilizers has improved significantly since the
beginning of the year, according to industry reports. As a result of easing in natural
gas prices, a large portion of the capacity that had been idled is back on-stream. As
of the end of March 2001, nitrogen fertilizer availability for the United States was
92% of normal levels (Table 2). Nevertheless, some western states still are 10-15%
below normal levels.
For the period July 2000 - January 2001, U.S. nitrogen imports increased by 28
percent over the same period July 1999 - January 2000. Nitrogen imports into the
U.S. are likely to hit record levels this year, according to The Fertilizer Institute.

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Ta ble 2: Nitrogen Fertilizer Available: Percent of Normal Supply
% of
% of
% o f
% of
% of
State
Normal
State
Normal
State
Normal
State
Normal
State
Normal
AL
93
IL
94
M N
95
NC
95
TX
91
AZ
95
IN
91
MS
95
ND
86
UT
95
AR
97
IA
81
M O
81
OH
88
VT
100
CA
100
KS
96
MT
85
OK
93
VA
100
CO
89
KY
97
N E
87
OR
98
WA
100
CT
100
LA
95
N V
100
PA
75
WV
100
D E
100
ME
100
N H
100
RI
100
WI
85
FL
94
MD
92
N J
70
SC
100
WY
85
GA
93
M A
100
N M
95
SD
85
ID
95
MI
95
N Y
100
TN
96
US
92
Source : “Weekly Weather and Crop Bulletin.” April 3, 2001. National Agricultural Statistics
S ervice, U.S. Department of Agriculture.
Data for the month of January 2001, show anhydrous ammonia imports up 74%
over January 2000. For the period covering July 2000 – January 2001, ammonia
imports are up 22% over the previous year. According to The Fertilizer Institute,
these figures are understated since they do not include data on imports of ammonia
from Russia and the Ukraine, which are not available from the Commerce
Department. It is estimated that annual U.S. imports from these two countries range
from 750,000 to 1.2 million tons.
There remains concern the California energy crisis will contribute to increase in
fuel and fertilizer costs for farmers. The state’s recent electricity shortage has been
blamed for boosting the price of natural gas, a fuel for many California power plants.
Farm Income Effects
According to USDA’s Economic Research Service (ERS), as of January 2001,
net farm income for 2001 is forecast at $41.3 billion, which compares to $45.4 billion
in 2000. Average net farm income for 1990-2000 was $45.3 billion. According to
ERS, the lower 2001 forecast hinges on an assumption that government payments will
be approximately $8 billion less in 2001 than in 2000. Government payment
assumptions are the main reason for a decline in the farm income forecast, since the
value of commodity receipts is on an upward trend. Government payments were a
record $22.1 billion in 2000, up $1.5 billion from 1999. Additional emergency farm
assistance accounted for $8.9 billion of total government payments in 2000. In 2001,
emergency assistance is limited to the payments for which farmers remain eligible

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under the legislation enacted in 2000, and is forecast to be $3.6 billion, as of this
writing.
According to ERS, total commodity production expenses are forecast to rise
$1.0 billion in 2001 (1% above 2000), topping $200 billion for the first time. Even
though planted acreage is expected to fall, fertilizer expenses should increase 3-4%
due to the impact of significantly higher production costs for nitrogen fertilizer.
Petroleum is one of the main inputs in pesticide products, but pesticide expenses are
forecast up less than 2%. Factors other than petroleum account for a larger share of
pesticide production costs, so pesticide expenses are not expected to increase as much
as fertilizer expenses.
Energy costs for agriculture will rise slightly in 2001, according to ERS
projections made in January 2001. This assumes fuel expenses will be similar to 2000,
as the recent price increases fall off toward the end of the year. As shown in Table
3, the Fuels Index during March 2001, was at 140, down 2.1% from February 2001,
but up 4.5% from
Table 3: Index of Prices Paid for Fuel (1990-92 = 100)
M a r c h 2 0 0 0 .
C o m p a r e d t o
Feb 00
Mar 00
Jan 01
Feb 01
Mar 01
February 2001, prices
Fuels
125
134
143
143
140
were lower for diesel
Diesel
127
133
141
137
129
fuel and gasoline, but
9 % h i g h e r f o r
Gasoline
125
137
134
135
132
liquefied petroleum
LP Gas
117
136
172
188
205
(LP) gas during
Source: National Agricultural Statistics Service, USDA. Monthly. Agricultural Prices.
March 2001. In 2000,
expenditures for fuels
increased by $2.3
billion over 1999, which was the highest year-to-year jump since 1980, when they
rose by almost the exact same dollar amount. The highest percent increase occurred
in 1974, when fuel costs soared 43%.
Incentives for farm operators to seek cost saving practices, such as adopting
fuel-saving cultivation and other production processes, are likely to offset some of the
recent rise in production expenses. Farmers across the nation used conservation
tillage (no-till, ridge till, and mulch-till) on more than 109 million acres of farmland
in 2000, over 36% of U.S. planted cropland area, up from 26% in 1990. Expansion
of no-till accounts for most of the growth in conservation tillage in the last decade.
In 2000, no-till was used on over 52 million acres of 297 million cropland acres
planted (17.5%) a threefold increase in no-till acreage since 1990.6 Conservation
tillage requires fewer trips across the field and generally less horsepower for field
operations. The outlook for increased use of conservation tillage adoption for the
2001 growing season likely will be positively influenced by a combination of low
commodity prices and higher input costs, especially for diesel fuel. This will
encourage farmers to seek potential cost-savings from conservation tillage without
sacrificing yield, according to ERS.
6“Conservation Tillage Firmly Planted in U.S. Agriculture.” Agricultural Outlook March
2001. Economic Research Service, U.S. Department of Agriculture.

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If fuel supplies were disrupted due to unforeseen circumstances, expenditures for
fuels could rise above current levels, according to ERS. California farmers, who are
heavy users of electricity, currently are considering alternative fuel sources and
energy-conserving practices to offset the rising costs of electricity. Farmers in other
parts of the country, who are dependent on natural gas, LP gas, and propane also are
evaluating alternatives.
Because individual farmers are “price-takers” and lack the capability to quickly
pass on higher costs through the food marketing chain, net farm income likely would
be reduced in the short term by the equivalent amount of any rise in production
expenses. Moreover, nearly half of all nitrogen fertilizers consumed in the United
States are produced and marketed by farmer-owned co-ops. Thus, losses to this
sector are likely to have impacts on farmers invested in co-ops.
Options for Farmers
It seems likely that farmers will reduce fertilizer application rates, with a resulting
reduction in crop yield. The current fertilizer situation makes it more critical that
fertilizer management be geared toward achieving maximum efficiency. Options
available to farmers include soil tests, realistic yield goals, and applying fertilizer later
in the growing season.
Farmers also can alter their production mix and switch to different crops to
reduce fertilizer/energy costs. One of the principal reasons for USDA’s prediction
that soybean acreage is likely to increase in 2001, while corn acreage decreases is that
soybeans use less nitrogen-based fertilizer than does corn. Soybeans fix their own
nitrogen from the air, so require very little fertilizer. Therefore, farmers may switch
from corn to soybeans. In order to reduce irrigation costs, farmers may switch from
corn to cotton, sorghum, or sunflowers, for example, which require less water.
Another option for farmers is switching to a different form of nitrogen fertilizer.
Using urea, for example, instead of anhydrous ammonia, might be an option because
urea prices have not risen as much.
Some have suggested current fertilizer prices offer an increased incentive to use
animal waste such as poultry litter or hog waste as fertilizing agents, although this
approach has some limitations. Approximately 15 truckloads of poultry litter are
needed to achieve the same nitrogen level as one truckload of commercial fertilizer.
Moreover, hog waste typically is in liquid form, and might only be practical where it
can be piped in. Environmental concerns (including manure odor) also might
accompany large scale uses of these alternatives. However, in some parts of the
country where animal waste is produced in amounts that exceed available disposal
space, this may be a viable option.
For heating purposes, some farmers are switching from natural gas to propane
because of lower prices. Also, rising prices for fossil fuels and falling grain prices
have prompted some farmers to switch to grain furnaces, which can burn grain such
as corn, wheat, barley, etc. According to research, one bushel of corn will generate
about as much heat as five gallons of liquid propane. Burning grain has a potential

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economic advantage if the grain has lesser value; e.g., is low quality, mildewed, or for
some other reason unmarketable.
Food Prices
A sustained increase in energy prices could be translated into higher food prices
for consumers. Energy use adds to food production costs and consumer food prices
beyond the farm gate in three stages: (1) food manufactured with energy intensive
technologies, (2) transportation of food products to regional markets in climate
controlled cargo areas, and (3) storage and distribution of food items in
environmentally controlled facilities. Food retailers are likely to use considerably
more energy than the average retailer to control the environment for perishable food
products around the clock, according to ERS.
ERS estimates 3.5% of the cost of food is attributable to energy expenses, and
4% is attributable to transportation expenses (Figure 5). (The energy bill includes
only the costs of electricity, natural gas, and other fuels used in food processing,
wholesaling, retailing, and foodservice establishments. Transportation fuel costs,
except for those incurred for food wholesaling, are excluded.)
Figure 5: Distribution of a Dollar Spent on Food, 1999.
Source: “Food Marketing and Price Spreads: USDA Marketing Bill.” ERS, USDA.
Farmers receive 24 cents for every $1 of consumer expenditures on food. This
means that 76 cents of the consumer food dollar is attributable to the marketers of
food. These food processors, transporters, wholesalers, and retailers, have a greater
capability than farmers of passing on their higher costs through the production-
marketing system, and eventually to the consumer.

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Congressional Action
In response to the energy situation, Congress has introduced various legislation
that would encourage alternative sources of energy, allow emergency loans for
businesses affected by high energy costs, and allow for further exploration in
protected areas. Additionally, several Senators have requested the General
Accounting Office (GAO) study various energy-related issues. Currently, GAO
reportedly is setting up a way to do a broad-based study that would combine all
requests.
Legislation
S. 60 (Byrd). National Electricity and Environmental Technology Act.
Authorizes accelerated research and development programs for advanced clean coal
technologies for use in electricity generating facilities; amends the Internal Revenue
Code to provide financial incentives to encourage retrofitting, repowering, or
replacement of coal-based electricity generating facilities to protect the environment
and improve efficiency and encourage the early commercial application of advanced
clean coal technologies. Introduced January 22, 2001, and referred to Finance
Committee.
H.R. 301, H.R. 302 (Shows). Amend the Consolidated Farm and Rural
Development Act to authorize the Secretary of Agriculture to make emergency loans
to poultry farmers whose energy costs have increased substantially. Introduced
January 30, 2001, and referred to the Agriculture Committee.
H.R. 396 (Pickering). Amends the FY01 Agriculture Appropriations Act
(P.L. 106-387) to direct the Secretary of Agriculture to provide emergency assistance
to crop, livestock, and poultry producers, and greenhouse operators who have
incurred economic losses due to increased energy prices in 2000 or 2001. Introduced
February 6, 2001, and referred to the Agriculture Committee.
H.R. 478, H.R. 479, H.R. 480 (Shows). Directs the Secretary of Agriculture
to provide emergency loans under the Consolidated Farm and Rural Development
Act, to agricultural producers who have experienced qualifying energy cost increases.
Such assistance would not depend upon the existence of a natural disaster in the
affected farm's county. Introduced February 6, 2001, and referred to the Agriculture
Committee. On March 22, Congressman Shows wrote a “Dear Colleague” letter
urging support for H.R. 478.
S. 295 (Kerry). Introduced as the “Small Business Energy Emergency Relief
Act of 2001,” and passed the Senate as the “Small Business and Farm Energy
Emergency Relief Act of 2001.” The Small Business Committee adopted an
amendment (originally introduced as S. 380 by Senator Kohl) to include farmers.
Section 4 relates specifically to agriculture and amends the Consolidated Farm and
Rural Development Act, to authorize USDA to make disaster loans to assist farmers
to recover from economic injuries resulting from sharp and significant increases in
energy costs. Authorizes USDA to provide loans for this purpose for two years.
Directs the Secretary to submit a report on the effectiveness of such loans, together

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with recommendations for improvements, if any, to the Agriculture Committee and
the Small Business Committee in both the Senate and House.
S. 295 was introduced on February 8, 2001, and referred to the Small Business
Committee. On February 28, the Committee ordered the bill to be reported favorably
with an amendment in the nature of a substitute, which included the agricultural
provision. On March 26, the bill passed the Senate by unanimous consent. On March
27, the bill was received in the House and referred to the Agriculture Committee and
the Small Business Committee.
H.R. 1010 (Tom Udall). Small Business and Farm Energy Emergency Relief
Act of 2001. Companion bill to S. 295, including agricultural provisions. Introduced
March 13, 2001, and referred to the Agriculture Committee and the Small Business
Committee.
S. 568 (Sessions). Amends the FY01 Agriculture Appropriations Act (P.L.
106-387), to provide 2000 and 2001 emergency assistance to crop, livestock, and
poultry producers, and greenhouse operators who have or are likely to have increased
energy-caused operating costs. Introduced March 20, 2001, and referred to the
Agriculture Committee.