Energy Consumption in U.S. Agriculture John A. Miranowski Professor of Economics Iowa State University
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
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
Current Farm Energy Consumption • Direct energy – diesel, gasoline, LP gas, natural gas, and electricity • Indirect energy – fertilizers and pesticides
Changes in Farm Energy Consumption over Time • Diesel fuel and gasoline • Electricity • Fertilizers and pesticides
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
Energy Expenditures in Crop and Animal Production • Field crop production • Animal production • Specialty crop production • Irrigation
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?
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?
Real Prices of major fuel sources 1970-2002 (1996 dollars):
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
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
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?
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
Energy Intensity (BTUs consumed per dollar) in US Agriculture, Food Manufacturing, Industry, and U.S. Economy
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
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
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
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
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
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
Direct Energy Expenditure per Dollar of Output in Major Agricultural Crops:
Nominal Prices of major fuel sources: 1970-2002