Sky-high energy cost has agriculture gasping

First it was El Nino. Then it was La Nina.Now it's "Hay Caramba!" Translated loosely: "good gracious...holy mackerel...where did that freight train come from."

California and Arizona agriculturists went into a state of shock this winter as energy costs soared to dizzily unexpected heights in the two most productive agricultural states in the nation. Low commodity prices pale in comparison to the economic disaster farmers are facing from altitudinous diesel, natural gas, propane and electricity prices, according to farmers and others.

"Farmers figure on a $1,000 per acre crop budget, energy costs represent 3 to 7 percent," said Earl Williams, president of the California Cotton Growers and Ginners Association, Fresno, Calif. "Energy costs have escalated to where energy now represents three and four times that."

"We saw an energy cost increase coming, but no one even imagined we'd see natural gas prices reach 10 to 20 times what they were a year ago," said Mark Borba of Borba Farms in Riverdale, Calif. "Diesel prices increased fourfold and propane went from 53 cents in October to $1.22 in late December"

Prices came down in January, but they are still well above a year ago.

Open market natural gas prices reached a level this winter where the cost to pump water in Borba's area reached $500 to $600 per acre with a natural gas-powered engine. That is 10 times the normal cost.

"The farmers I represent are facing economic disaster," said Williams, who is growing increasingly frustrated with no response from legislators and regulators.

"While the usual suspects of tight supplies, increased demand and limited storage have already raised their heads, none can account for the outright pillage of the affected industries," said a frustrated Williams.

"They tell us there is no shortage - that there is diesel fuel available in Los Angeles and elsewhere. But, it is not available in areas where farmers are, " Williams said. "Shortages or not, we have a crisis in California agriculture, and farmers need relief."

Here are just a few fallout examples: - Food processors are shutting down because they cannot afford energy costs. A winery, flower nursery and paper mill have already shut down due to the high cost of natural gas and more are sure to follow.

- Fertilizer prices are soaring. UN 32 prices already have reached $240 per ton vs. $170 early in the fall.

- Natural-gas-fed fertilizer manufacturers are shutting down, selling their contracted natural gas for two and three times what they paid for it, gaining far greater profits from gas sales than they could glean from selling fertilizer. This is expected to create major shortages of fertilizer this spring.

Bale-drying costs - The cost to dry a cotton bale at the gin has gone from 73 cents per bale in 1997 to more than $15 per bale today. Williams said many gins on natural gas would not even open next season unless prices drop dramatically. Many would not have opened this season had they known the height that the cost natural gas would reach. Growers are already looking to switch to gins using propane.

- Power costs to process butter, cheese and powered milk has increased as much as tenfold this winter, and dairymen are asking for an emergency price increase in milk process to offset that.

- California Tomato Growers Association estimates it takes 45 gallons of diesel to grow and harvest a processing tomato crop. A year ago fuel cost would total $31.50. Based on diesel prices in December, that reaches $67.50

"The increase in energy prices are extremely traumatic for all segments of agriculture - from the grower to the retail supplier to the processor," said Renee Pinel, director of government affairs for the new California Plant Health Association, the alliance of the California Fertilizer Association and the Western Crop Protection Association.

The domino effect is also affecting financing, according to Pinel. "Growers are having a hard time getting production loans for next year because bankers cannot see a profitable bottom line with low commodity prices and escalating energy costs," she said. Loans normally secured in November are still unfunded.

Borba can testify to that. "We have talked to every bank in the central valley over the past 18 months - from the biggest to the smallest, and everyone is happy to talk to you, but they say until they can get their arms around what they have in the wake of the 2000 season, they don't want any more ag loans," he said.

Financing from insurance companies is non-existent, said Borba, leaving commodity buyers as the lender of last resort. "And many of them are oversubscribed.

"Right now it is hunker down and hang on time," said Borba.

Daniel Burns of the diversified San Juan Ranches farming operation in Merced County, Calif., said the "picture is real bleak right now. We have been trying to figure out what commodity to grow to break even.

"We worked on our budgets in November deciding what to do. Now with fuel prices going up like they have just in the last month, I think I need to go back and look at everything again."

All the processors (gins and tomato processors) Burns relies on are looking at higher energy costs in 2001, and that will reduce his return on all crops.

Arizona Cotton Growers Association president Wiley Murphy who farms in Pima County, Ariz., said his fertilizer costs increased last year 40 percent and diesel is up almost 60 percent.

Farm organizations have been pleading with regulators and politicians for relief. They want Cal/EPA to temporarily allow non-CARB diesel fuel into California, and they are asking Gov. Gray Davis for a tax break on diesel until prices fall. So far there has been no response.

California is the only state in the nation where a special, more expensive, low-pollution diesel fuel is required. Arizona is looking at requiring the same fuel there in an effort to reduce pollution, but Arizona Cotton Growers Association successfully led a fight to head that off for now.

In California, agriculture's problems are largely being ignored as the politicians and regulators grapple with the soaring cost of energy to the state's two major utilities, Pacific Gas and Electric and Southern California Edison. The two claim to have paid $9 billion for electrical power in just the past few months and both are asking for huge increases in power rates. They've been allowed modest rate increases, pending audits of their books.

The utilities say they'll go broke without immediate, big rate increases.

They are blaming the problem on deregulation of the utility industry. The state's governor and most everyone else agree deregulation has turned out to be a disaster.

"However, it is not just deregulation," said Pinel. "Deregulation is part of it, but the regulatory environment in the state has driven a lot of power sources out of California. Now these people are selling power back to California at huge profits."

This is threatening the business climate in a state of 32 million people. Pinel said unless relief is provided, there will be a mass exodus of food processors and other business over the next three years.

Wake up call? Kern County, Calif., farmer Fred Starrh said California's energy crisis "could be the wake up call we need.

"We as farmers and business people have been saying for years you cannot sit here and say no more dams, no more power plants, more expensive diesel without some day paying a price," he said.

"That day has come - urban California is going to have to realize you have to deal with resources in a more realistic basis than we have in recent years," said Starrh. "More and more people are coming to California, and we have to begin to balance resources against needs.

"The business sector has been talking about this for years, but no one listens. The majority of Californians may now listen when they get their next PG&E bill or when they start rolling blackouts.

"All I want to point out is how many power plants could have been built for the $9 billion the utility companies claim to have paid for electricity from providers outside the state in recent months," said Starrh.

Pinel said many California politicians are coming to the realization that the regulatory and environmental atmosphere must change if California is to continue prospering economically. "How much will change will depend on how many hits the politicians are willing to take from the environmental community," she said.

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