Cap and trade can benefit farmers despite higher costs, USDA says

Farmers have more to gain than lose from a cap-and-trade regime for greenhouse gases, despite estimates that they could see significantly higher production costs, according to a new analysis from the Agriculture Department.

An expanded economic study, which USDA released yesterday, estimates that farmers with energy-intensive crops could see their cost of production per acre go up to nearly 10 percent over the next 50 years. But agriculture officials insist that higher prices for fuel or feed would be offset by the gains of participating in an offset market.

"The bottom line is, we think this is a net benefit for farmers and ranchers," said Agriculture Secretary Tom Vilsack.

USDA released the report at a House Agriculture Committee hearing yesterday. A second hearing today will focus on the offset market that could establish a new cash flow to farmers. Companies with carbon emissions could pay farmers and ranchers to sequester carbon through planting trees, practicing no-till farming or developing better nutrient management.

The new analysis of the House-passed climate bill (H.R. 2454) estimates that commodity crop farmers would see minimal price increases in the first four years, when a rebate in the bill would keep fertilizer prices lower.


Over the longer term, farmers would see bigger price increases, according to the agency. Agriculture itself is not capped in the bill, but the price of energy and fertilizer is expected to go up because of caps on the industries that supply the inputs for fuel and fertilizer. Livestock producers would also be hit by higher commodity prices.

For instance, corn, one of the most energy-intensive crops, would see cost increases of $1.19 per acre in the short-term but $25.19 in long term, or 9.6 percent.

USDA projects fuel costs to rise between 2.6 percent to 5.3 percent from 2012 to 2018. Fertilizer would go up an extra 0.3 percent to 1.7 percent per year.

The cost estimates ignore potential benefits that farmers and ranchers might gain from selling carbon credits. Vilsack said in a teleconference with reporters yesterday that the offset market in the House bill could bring in $10 billion to $20 billion for the farm sector. USDA chief economist Joseph Glauber will expand on the benefits from offset markets in another round of testimony for the Agriculture Committee today.

Vilsack said all sectors -- including livestock and crops, like rice, that have less carbon-sequestration potential -- could have a chance to benefit under the system. But he warned the transition would not be easy for all farm enterprises.

"It is fair to recognize that different producers will be affected differently," Vilsack said. "But ... more farmers will benefit than not."

Differing interpretations

House Agriculture Committee members interpreted the economic results differently, depending on their stance on cap and trade.

"The conclusions of all the studies remain the same, that cap and trade has the potential to devastate the agriculture community with higher energy prices," said Rep. Bob Goodlatte (R-Va.).

If Congress does not pass a climate bill, EPA could move forward with their own regulations to curb emissions. Goodlatte recommended Congress block the effort by passing legislation that restricts the authority of EPA to take that action, an idea that failed during the EPA spending bill debate this year.

But Rep. Tim Walz (D-Minn.) said that lawmakers, farm interests and economists are not paying enough attention to the potential harm to agriculture from a warming planet -- which could bring on more severe weather events, disease and pests.

"The fact of the matter is, what the bill won't do, climate will do," Walz said. "It behooves us all to look at the evidence on all sides, not just the short-term view, climate change is not going to allow us to yield the food and fuel we need."

Other economists who testified at the hearing yesterday agreed that unmitigated global warming could also have serious economic effects for farmers.

"Studies have tended to underemphasize the costs of adaptation and of severe climate events," said John Antle, professor of economics at Montana State University. "We need to think more carefully about where we are headed in the future."

"The potential yield decreases of doing nothing are extreme," said Richard Pottorff, chief economist of Doane Advisory Services. "We need to take some action, but what we do is the question."

Get on board

Most farm groups have been hesitant to support U.S. cap-and-trade efforts because of concern about how such a plan could raise energy and fertilizer prices.

The American Farm Bureau has launched a campaign against U.S. emission curbs and many commodity groups have either decried climate legislation or taken a neutral stance. The left-leaning National Farmers Union is one of the few large farm groups advocating for climate change legislation.

Vilsack urged farm groups to change their stance, saying global warming could be devastating for agriculture. "It is important for us to recognize no action is not a good option," he said.

Vilsack predicted farmers would embrace cap and trade as they see the advantages from a carbon sequestration market.

"Farmers were reluctant when fertilizer was first proposed ... or seed technology ... but they embraced the technology, and the result is agriculture production that is the envy of the world," Vilsack said. "I understand the concern in farm country, but if this is done properly, it is going to ultimately, in the long term, the short term and the medium term, it is going to be a benefit to farmers."

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