Energy Consumption in U.S. Agriculture

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Energy Consumption in U.S. Agriculture

• John A. Miranowski
• Professor of Economics
• Iowa State University

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Introduction

• Premise that energy consumption is driven by real
  energy and relative prices
• Agriculture may be more vulnerable to energy
  disruptions than to price shocks
• Government policies provide incentives and
  disincentives for energy consumption

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Objectives

• Establish farm energy consumption baseline
• Evaluate responsiveness of producers to real
  energy and other relative price changes
• Assess vulnerability to energy supply disruptions
• Consider energy efficiency of farm production and
  other sectors
• Discuss roles of technology, farm policy, and
  rural energy security

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Current Farm Energy Consumption

• Direct energy diesel, gasoline, LP gas, natural
  gas, and electricity
• Indirect energy fertilizers and pesticides

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Changes in Farm Energy Consumption over Time

• Diesel fuel and gasoline
• Electricity
• Fertilizers and pesticides

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Total Energy Consumed on US Farms, 1965-2002
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Energy Consumption and Farm Production
Expenditures

• Direct energy consumes twice as many BTUs as
  indirect energy, but
• Direct energy accounts for 5-7 of farm
  expenditures
• Indirect energy accounts for 9-10 of farm
  expenditures

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Direct and Indirect Energy Consumed on U.S.
Farms, 1965-2002
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Energy Expenditures in Crop and Animal Production

• Field crop production
• Animal production
• Specialty crop production
• Irrigation

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Energy Consumption by Production Region

• Fuel consumption in field crop producing regions
  Corn Belt, Northern Plains, Southern Plains
• Electricity consumption Pacific
• Fertilizer Corn Belt
• Potential indicators of vulnerability?

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How do Producers Respond to Energy Price
Increases?

• What is happening to nominal and real energy
  prices?
• What aggregate response to a real energy price
  increase would we anticipate from producers?
• What other substitution opportunities are
  available to producers?

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Real Prices of major fuel sources 1970-2002
(1996 dollars)
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Own Price Elasticities and Allen Elasticities of
Substitution

• Own price elasticity of energy - -0.60
• Own price elasticity of fertilizer - -0.66
• Own price elasticity of pesticides - -0.53
• Energy/capital substitution elasticity - 1.13
• Energy/fertilizer - 0.60
• Energy/pesticides - 0.70
• Energy/labor - 0.59

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Off-Farm Energy Consumption in Agriculture
Processing

• Energy consumed in food processing
• 1.4 Quad BTUs in 2001
• 50 fuel and 50 electricity
• Energy consumed per dollar output
• Consumers demanding more processed and
  convenience foods
• Substituting energy in processing for energy use
  in households

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What is Happening to Farm Energy Efficiency?

• Is agriculture a profligate user of energy?
• Are producers improving energy efficiency over
  time?
• How does energy efficiency in agriculture compare
  to other sectors?

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Farm Productivity and Efficiency

• 2 annual productivity growth in AG
• Total inputs flat, but productivity and output
  growing
• Major inputs declining except energy and
  chemicals after early 1990s
• Partial productivity measures all increasing

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Energy Intensity (BTUs consumed per dollar) in US
Agriculture, Food Manufacturing, Industry, and
U.S. Economy
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Rural Energy Security and Rural Disruption Costs

• Energy disruption costs at points in production
  and processing
• Specialty crop harvesting
• Crop processing
• Animal production
• Animal harvesting
• Dairy production
• Fertilizer production
• Ethanol production
• Lack seasonal energy use data to assess such
  disruption costs

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Information and Biotechnology Impacts on Energy
Efficiency

• Continuation of productivity growth
• Substitute information for other inputs
• Substitute biotechnology for fertilizer,
  pesticides, energy, and pharmaceuticals
• Substitute information and knowledge for
  traditional breeding and husbandry

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Integrating Farm Energy Consumption and Production

• Wind energy offers opportunities for integrated
  on-farm production and consumption
• Bio-fuels have more limited potential and scale
  problems
• Solar offers potential power for livestock
  watering, electric fencing, and lighting in more
  remote areas

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Policy Impacts on Farm Energy Consumption

• Farm policy may impact farm energy use
• Rural energy security policy concerns
• Farm Security and Rural Investment Act of 2002
• Renewable Energy Loans and Grants
• Energy Audits and Renewable Energy Development
• Technical Assistance to Develop Renewable Energy
  Resources
• Biofuels Research and Development

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Conclusions and Implications for Farm Energy Use

• Important consumer of direct and indirect energy
  in crop and animal production
• Producers do respond to real energy price
  incentives and do make input and output
  adjustments
• Vulnerability to energy supply disruptions may be
  critical in specific time periods

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Conclusions and Implications for Farm Energy Use
(cont.)

• AG is energy efficient relative to other sectors
  and improving in response to real price increases
• Farm and rural policies do have an impact
• on rural energy consumption

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Thank You!
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Supporting Slides
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Energys Share of Farm Production Expenses
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Direct Energy Expenditure per Dollar of Output in
Major Agricultural Crops
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Direct Energy Consumption in top 5 NASS
Production Regions
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Nominal Prices of major fuel sources 1970-2002
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Own Price Elasticity and Input Substitution
Elasticities
Input Land Labor Capital Energy Fertilizers Pesticide
Land -0.28
Labor -0.27 -0.39
Capital 0.73 0.65 -0.86
Energy 0.35 0.59 1.13 -0.60
Fertilizers 0.20 0.82 0.97 0.60 -0.66
Pesticides 0.08 0.66 0.82 0.70 1.04 -0.53
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Indices of Farm Output, Input Use and
Productivity in US Agriculture
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Indices of Major Farm Inputs Usage in US
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Partial Productivity indexes in US Agriculture