WASHINGTON -- The Agriculture Department's July 22 release of an economic analysis showing that the House-passed climate change bill would have a minimum negative impact on farm costs in the short term and income and benefits over the long term seemed to tame much of the criticism of the bill when Agriculture Secretary Tom Vilsack and Environmental Protection Agency Administrator Lisa Jackson testified before the Senate Agriculture Committee later the same day.
The climate change bill, which is designed to stop global warming, would set a cap on U.S. carbon emissions at a level 17 percent below 2005. The bill is expected to raise energy and fertilizers costs, but it also sets up a cap-and-trade program under which farmers and foresters who use practices that sequester carbon in the soil could get credits and sell those credits to companies that emit more carbon than they are allowed.
Economics
The economic analysis prepared by Dr. Joseph Glauber, USDA's chief economist, says that between 2012 and 2018, the bill's provisions would increase farm costs by three-tenths of 1 percent while farm income would decline by nine-tenths of 1 percent. USDA's analysis says farm production costs would be higher than the medium-term years of 2027 to 2033 and long-term years of 2042 to 2048, but that revenue from agricultural offsets will rise faster than costs from cap-and-trade legislation. The study assumes no technological change and acknowledges that the effects on sectors within agriculture and among regions will vary. The study covered the crop and livestock sectors, but not fruits and vegetables.
Vilsack testified that the analysis "demonstrates that the economic opportunities for farmers and ranchers can potentially outpace -- perhaps significantly outpace -- the costs from climate legislation." Vilsack added that he considered the figures conservative because the study does not include potential income from biomass production for bioenergy or technological change.
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Vilsack said a Northern Plains wheat producer might see an increase of 80 cents per acre in the cost of production by 2020 because of higher fuel prices. But based on a soil carbon sequestration rate of 0.4 tons per acre and a carbon price of $16 per ton, a producer could mitigate these expenses by adopting no-till practices and earn $6.4 per acre.
"This farmer does better under the House-passed climate change legislation than without it. And it's quite possible this wheat farmer could do even better if technologies and markets progress in such a way that allows for the sale of wheat straw to make cellulosic ethanol," Vilsack said.
Input costs
The USDA analysis appears to be in line with an analysis done by the University of Missouri in Columbia and Iowa State Food and Agricultural Policy Research Institute. Their study found that the climate change bill would raise costs for corn, one of the most energy-intensive crops, by less than 5 percent by 2020.
FAPRI economist Pat Westhoff told reporters, "It's a significant increase, don't get me wrong. But relative to what we've experienced in the last couple of years it's not that huge. By comparison, from 2006 to 2008, the cost of the fuel, fertilizer, seed and other inputs for corn jumped by an estimated 48 percent.
Before the USDA study was released, American Farm Bureau Federation President Bob Stallman testified that Farm Bureau expects much higher increases. USDA said total expenses would rise about $700 million per year in the 2012 to '18 period, but Stallman said the Farm Bureau expects production costs to rise by $13 to $14 billion. Farm Bureau also is concerned that farmers will shift crop land to tree production to get carbon sequestration benefits. That would reduce feed production and raise costs for livestock producers. The biggest difference between the USDA and Farm Bureau studies appears to be the role of fertilizer, which USDA contends would be unaffected until 2025 because of emission allowances included in the bill. USDA acknowledges that fertilizer costs would rise after 2025, but says farmers could make up much of the difference through increased earnings from carbon sequestration and higher crop prices.
Stallman testified against the bill, saying, "On a matter that could affect our nation for literally decades to come, it would be the height of folly to rush to judgment in a matter of days or weeks."
But National Farmers Union President Roger Johnson, former North Dakota agriculture commissioner, testified in favor of the Senate taking up the House-passed bill and adding more improvements for agriculture.
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"To state it simply, the cost of no action must become a central part of the ongoing climate change debate. Models of climate change scenarios demonstrate increased frequency of heat stress, droughts and flooding events that will reduce crop yield and livestock productivity," Johnson said. "Our members accept that they will face increased energy input costs as a result of a cap-and-trade program. However, they do not agree with those who claim climate change legislation will be void of economic opportunities and incentives."
Senate Agriculture Committee ranking member Saxby Chambliss, R-Ga., and Sen. Mike Johanns, R-Neb., a former agriculture secretary, had pressed Vilsack for the study and severely criticized the House-passed bill before the study's release. But at the hearing, Chambliss and Johanns, while still critical, stuck to specific questions.
Chambliss, who had pressed Vilsack for an economic analysis of the House bill, criticized the study for treating livestock lightly and not including specialty crops, but Vilsack replied that USDA would continue to refine its analysis.
Johanns noted that EPA has said it expects some shift of farmland to trees to take ad-
vantage of possible payments for carbon sequestration and pressed Vilsack to state the number of acres that would shift. Johanns said reduced cropland would mean higher feed costs for livestock producers. Johanns and Jackson said they could not predict the number because farmers might shift land idled in the Conservation Reserve Program to trees rather than shift land in crops.
When Sen. Pat Roberts, R-Kan., noted that the American Farm Bureau Federation had predicted that 40 million acres -- about 10 percent of U.S. cropland -- would leave production, Vilsack said he would not accept that number as a likely estimate.
