YF&R Discussion Meet: Renewable Energy Policies Affect on Agriculture Matt Erickson Economist American Farm Bureau Federation® September 13, 2011
YF&R Discussion Meet: Renewable Energy Policies Affect on Agriculture Matt Erickson Economist American Farm Bureau Federation® September 13, 2011.
Mar 26, 2015
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YF&R Discussion Meet: Renewable Energy Policies Affect on Agriculture
Matt EricksonEconomist
American Farm Bureau Federation®September 13, 2011
Question
Are the current and proposed Renewable Energy Policies beneficial to American agriculture?
Farm Bureau Policy
“Farm Bureau supports a comprehensive energy policy to help alleviate the energy-related economic hardship being suffered by U.S. farmers and ranchers by creating a more diverse energy supply, including domestic oil and gas exploration to renewable energy sources such as ethanol, biodiesel, biomass and wind.”
Outline• Oil
• The motivation: The importance of a domestic energy source
• Renewable Fuels• What are some policies that are currently in place?• How is the industry doing today?• Success stories
• Challenges• Food vs. Fuel• Budget….Budget….Budget! It’s all about the Budget!
• Concluding Remarks
Oil
Production Costs
2008 - 2009 2009 - 2010 2010 - 2011F 2011F - 2012F5 year average (2008-2012F)
Corn 0.3% -7% 18% 2% 12%Soybeans 2% 1% 13% 2% 19%Wheat -5% -10% 18% 3% 4%Rice -7% -1% 15% 2% 9%Cotton -2% 6% 9% 3% 17%
Total Operating Costs (Yearly Percentage Change)Cost of Production Percentage Changes for U.S. Major Field Crops (2008-2012F)
Moral of the story: High commodity prices DO NOT mean farmers pocket that entire price!
For How Much Longer?
Planet’s Resource Duration
Oil 160 years
Coal 500 years
Gas 240 years
Nuclear Power (2nd & 3rd generation technologies)
200 years
Nuclear Power (4th generation technologies)
10,000 years
Source: Oil Magazine. “Pierre Gadonneix, Chair of the World Energy Council Interview.” March 2011 Issue. Number 13.
= 44.7% oil imports
= President of OPEC
By 2022 = 24 billion gallons of ethanol.
By 2035 = 39 billion gallons of ethanol.
How Do Renewable Fuels Policies Benefit Agriculture?
$0.45 tax credit
(VEETC)
$0.54 import tariff (VEETC)
RFS2 Mandate
Farm Gate Agriculture
Increase Demand for Ethanol
Acreage shift to corn causes decrease acreage for other
crops.
Increase Demand for
Corn Acreage
Higher Commodity
Prices!
$$$
But, They Also Benefit Consumers
In 2010
United States = $0.89/galEast Coast = $0.58/gal
Midwest = $1.37/gal
What would happen if ethanol production came to
an immediate halt?
Gas prices increase by 41% to 92%
Source: “The Impact of Ethanol Production on US and Regional Gasoline Markets.” Xiaodong Du and Dermot J. Hayes. Iowa State University. April 2011
Renewable Fuels Standard (RFS2)
Biomass-Based Diesel (50% Reduction)
Non Cellulosic Advanced (50%
Reduction)Cellulosic Biofuel (60% Reduction)
Total Advanced Biofuel
2008 9.00 9.002009 10.50 0.50 0.10 0.60 11.102010 12.00 0.65 0.20 0.10 0.95 12.952011 12.60 0.80 0.30 0.25 1.35 13.952012 13.20 1.00 0.50 0.50 2.00 15.202013 13.80 1.75 1.00 2.75 16.552014 14.40 2.00 1.75 3.75 18.152015 15.00 2.50 3.00 5.50 20.502016 15.00 3.00 4.25 7.25 22.252017 15.00 3.50 5.50 9.00 24.002018 15.00 4.00 7.00 11.00 26.002019 15.00 4.50 8.50 13.00 28.002020 15.00 4.50 10.50 15.00 30.002021 15.00 4.50 13.50 18.00 33.002022 15.00 5.00 16.00 21.00 36.00
Advanced Biofuel (Nested Standards)Conventional Renewable Fuels
(Grandfathered or 20% Reduction)Total
Renewable FuelYear
More information on the RFS2: http://www.ethanolrfa.org/pages/renewable-fuels-standard
The Path to 21 Billion Gallons?
49.8%
43.3%2%
4.6%
<0.3%
Renewable Fuels can give farmers new income opportunities!
Where are we today?
Ethanol Margins
MA Dairy Farm Success Story
Massachusetts dairy farm success story• Installed 112 photovoltaic panels on the roof of his cheese-
making facility = Net Gain: $1,000/month• Switched to a variable speed vacuum pump system in his
milking parlor = Net Gain: $300/month• Added energy efficiency motors to 30 fans in the cooling and
aging rooms = Net Gain: $500/month• Standard lighting replaced with energy-efficient bulbs = Net
Gain: $100/month• New refrigeration system cools milk more efficiently by
running six hours less per day.
http://articles.boston.com/2011-08-22/business/29915597_1_energy-efficiency-photovoltaic-panels-energy-costs
Food vs. Fuel
26% of domestic corn production is used for ethanol.
3% of world corn supplies is used
for ethanol.
Why not Food and Fuel?
= +
1 bushel of corn 17-18 lbs. of DDGS 2.8 gal. of ethanol
Why are Food Prices Increasing?
Farm Fork
A Weak Dollar?
20%
Where’s the Corn?
Supply
Demand
S2
Quantity
Price
Q1Q2
P1
P2
=
Budget Control Act
Phase 1$917 billion in
cuts over 10 yrs.
Phase 2$1.2-1.5 trillion in cuts over 10 yrs.
Budget: A Renewable Energy Policy Perspective
Current Plan (VEETC)
• $0.45 per gallon tax credit• $0.54 per gallon secondary tariff• Set to expire December 31, 2011
Proposed Plan (Thune/Klobuchar)• Immediately eliminate (July 31, 2011)
• $0.45 per gallon tax credit• $0.54 per gallon import tariff
• $1.3 billion deficit reduction• $668 million renewable fuels
incentives
• Extends:• Alternative fuel station tax credit (2014)• The small producer ethanol credit (2012)
• Cellulosic biofuels tax credit (2015)
Not included in recently passed Budget Control
Act!
Murray - OR Kerry - MABaucus - MT
Kyl - AZ Toomey - PA Portman - OH
Clyburn - SC Becerra - CA Van Hollen - MD
Hensarling - TX Camp - MI Upton - MI
Senate House
Key Dates to Remember for 2011
August 2: Debt ceiling deal
reached and signed by Pres. Obama
August 16: Majority and minority
leaders of the House and Senate will each appoint 3
members of the 12-member committee
October 14: Each committee of
jurisdiction in the House and Senate will report
recommendations for cuts from the programs under
its jurisdiction.
November 23: The joint committee
will vote on a bill.
December 2: The joint committee
will release legislative language on the bill.
December 9: The committees will recommend whether
or not to pass the committee bill.
December 23: The House and
Senate must vote on the bill.
Budget and the 2012 Farm Bill
Farm Bill TitleNumber of Provisions
Energy 8Conservation 5Nutrition 5Horticulture and Organic Agriculture 5Rural Development 3Research 3Trade 2Miscellaneous 2Farm Commodity Programs 1Forestry 1Livestock 1Agricultural Disaster Assistance 1
Total 37
Titles in the 2008 Farm Bill Containing Programs Without Baseline After FY 2012
22%
Concluding Thoughts
• National Security: Reduces our dependence on foreign oil.• 2010: Displaced the need for approx. 445 million barrels of oil (1).
• Business and Entrepreneurship: Potential new income stream.• Management: Potential to lower production costs.• Economy: Provides jobs to Rural America (created over 400,000
jobs in 2010 from ethanol alone (1)).• Environment: Reduces CO2 emissions and the use of fossil fuels. A Choice: As Farm Bureau leaders, it is ultimately up to you to decide!
Are the current and proposed Renewable Energy Policies beneficial to American agriculture?
Source: RFA via Cardno ENTRIX
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