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Published May 31, 2010, 01:07 PM

Proposed climate costs: Lethal to beet industry?

FARGO, N.D. — If cap and trade moves forward as currently framed in legislation moving through Congress, it will kill the sugar beet industry in the Red River Valley and much of the rest of the country, says David Berg, president and chief executive officer of American Crystal Sugar Co.

By: Mikkel Pates, Agweek

FARGO, N.D. — If cap and trade moves forward as currently framed in legislation moving through Congress, it will kill the sugar beet industry in the Red River Valley and much of the rest of the country, says David Berg, president and chief executive officer of American Crystal Sugar Co.

Berg has led the co-op’s management for about three years. Berg, a keynote speaker at a North Dakota State University-organized conference May 24 in Fargo, isn’t sugarcoating what he thinks the effect that either version of climate control legislation would have on his industry.

Berg, in a speech to academics and agribusiness

officials gathered for a climate change conference sponsored by NDSU and others, says that while

American farmers in general are exempt from carbon credit requirements, the beet processing plants that farmers own here are entirely vulnerable.

Some 20 speakers addressed aspects of climate change in a conference titled Alternative Policies on Climate Change and Their Implications on U.S. Agricultural Economy. Several nationally known agricultural economists seem to agree that the assumptions for climate change legislation are unknowns. Berg was the most definite about a likely scenario with current assumptions: If beet producers have pay for carbon credits the industry will become an “historical anachronism” within two or three decades.

“Without the sugar beet factory, the beet has no value at all,” Berg says, “and without burning fossil fuel, you’re not going to convert beets into sugar.”

The House version of the bill, called Waxman-Markey, passed June 26, 2009. The Senate version, called Kerry-Lieberman, is in the process, but it’s not known when or if it will pass. The beet industry has significant impact in Minnesota, North Dakota, Montana, Nebraska and Wyoming.

Berg says each of Crystal’s five factories has a $500 million replacement value, if built new.

“You might say that the factory is an extension of the farm,” says Berg, noting that the entire beet sugar industry in the past several years has converted to a farmer-owned cooperative form of governance. Crystal, he notes, was purchased by farmers from a corporation to form a cooperative in 1974. This hints that the industry will be looking to make itself an exception to a climate change law.

Making strides

Berg talked about the amount of energy required to convert sugar beets into crystalline sugar.

“Everything we do in that factory requires a significant amount of energy,” Berg says, listing the pieces of the process — diffusing, juice purifying, evaporating, crystallizing and dryinig.

The beet industry carbon-use efficiency has improved significantly in the past 20 years, but largely as a cost-saving measure — not for environmental reasons. In 1990, Crystal calculates it created 1.55 tons of carbon dioxide-equivalent for every ton of sugar produced. Now, that efficiency is closer to 1-to-1.

“Given the right amount of time and investment, we have made important strides,” Berg says.

Still, because Crystal produces a third of the beets in the United States, it produces about a third of the nation’s beet sugar carbon. He says that if the beet sugar industry disappears, the U.S. cane industry would be hard-pressed to replace it and Americans still would eat sugar but buy it from foreign producers.

About two-thirds of the world sugar is cane sugar, and because the byproducts of that process are used to fire some of the plants, to “a partial extent, they’re off the hook” in climate control legislation.

But the sugar beet industry is “in total is in jeopardy,” he says.

Beets include 17 to 18 percent sugar, 7 to 10 percent fiber, and the rest — 72 to 76 percent is water. Beets in this region historically have been stored using frigid December-January temperatures. This has tended to increase use of the fixed costs of factories — up to 285 days in some years, compared with an average of 150 to 180 days for many U.S. competitors. But it also means variable costs go up because the factories are processing frozen beets.

Berg says the co-ops use coal or natural gas to fire plants, but that natural gas often is not feasible. It might be feasible in the Fargo-Moorhead area, where companies move natural gas to heat homes. But it’s not available in communities like Drayton, N.D., where natural gas pipelines haven’t been placed.

Crystal has experimented with burning its biomass-fired boilers, but he thinks “at best, it’ll be a supplement.” Wind-powered electrical power isn’t consistent enough for the process.

“Like it or not, we’re more or less married to fossil fuel,” Berg says.

Berg uses various assumptions in predicting the impact of cap and trade on his company. He notes that despite a recent run-up in sugar prices, which he likens to increased grain commodity prices in 2008, sugar prices have been “flat for 30 years.”

He also says that Crystal likely would qualify for “free credits” for export- and trade-sensitive businesses, but that those would go away over the long term as the supply of those allowances goes down and disappears in 2006.

Mitigate or adapt?

Bruce McCarl, an agricultural economist at Texas A&M University, also was part of the Intergovernmental Panel on Climate Change. McCarl, a co-recipient of a 2007 Nobel Peace Prize, says carbon dioxide content in the atmosphere is just as serious as ever, but that he’s skeptical in today’s political climate that there will be a choice to do anything to effectively mitigate damage it by limiting emissions. He says the costs are now and the results of those costs are uncertain.

“What this tells me is that we’re not going to avoid climate change, we’re going to have to adapt to climate change,” he says.

He sees increased water needs if warm areas get warmer. He says this may in fact increase the fresh surface water, as the earth gets warmer and there is more evaporation.

Likely impacts are more pests, altered grass, more precipitation in infrequent, severe events. McCarl sees northward crop migration and conditions better for cattle and hogs, as well as inundated facilities, winter access to water transportation, more yield variability.

With the varying climate and weather, the effectiveness and return from agricultural research will be altered, he notes.

“We can’t count on the weather being stationary, so we have to increase the research investment,” he says.

Dennis Nuxol, senior director of government relations for the American Farmland Trust, says studies that have shown cap and trade as it’s currently formed in House and Senate versions would be less costly to farmers than if the Environmental Protection Agency moves forward with regulation.

“Under the EPA regulatory scenario, agriculture doesn’t have the opportunity for income,” says Nuxoll, a former staffer for Sen. Max Baucus, D-Mont. There are conflicting studies on how much income farmers would receive and how much cropland would have to be shifted to trees to make it happen.

Ag’s uncertainty

Projecting income is a difficult task with carbon prices projected at $15 to $20 per ton, but the Chicago Climate Exchange having hit a high of $7 per ton and now at “about a nickel or less than a dime or quarter on the voluntary exchange.”

Nuxoll also says that if Congress tries to use legislation to delay or prevent EPA regulation, it doesn’t have an abil-ity to overcome a presidential veto, “which is almost certain to happen.”

Doug Goehring, North Dakota agriculture commissioner, at one point in the presentation, asked how cattle could be counted for methane output in greenhouse gas calculations, but also asked about the output of such things as wetlands.

Bill Hohenstein, with the U.S. Department of Agriculture’s Global Change Program, says wetlands are considered “natural and background” and therefore not counted among the “human contribution” to the greenhouse gas.

Won Koo, the NDSU agricultural economist and director of the Center for Agricultural Policy and Trade Studies, announced results of a survey in which North Dakota farmers were asked whether they would participate in markets that trade their ag practices as carbon credits under a cap-and-trade scenario.

He says farmers indicated they generally are reluctant to participate. The survey says farmers are more likely to participate with increases in carbon prices, or if they own land in the Conservation Reserve Program or in rangeland. He says farmers younger than age 45 are likelier to participate, as well as those who generally support climate change mitigation legislation.