Saturday, May 02, 2009

No farmer cap, thank you...

It is entirely predictable, of course.  Since few farmers would be caught dead supporting the idea of anthropogenic climate change - an issue too closely identified with the left - few of us want to participate in any wrong-headed effort to limit emissions. (Interestingly, several serious minutes of searching could not produce any polling on farmers regarding attitudes on climate change, so this is my impression from talking to producers this winter.)

Unless you pay us.

Now that the EPA has served notice they don't care what farmers think particularly - or Congress fro that matter - the political reality that SOMETHING is going to happen is sinking in.  The knee jerk reaction, based on long years of very lucrative lobbying, is to 1) get a slice of any "free" money being handed out, and 2) make sure agriculture doesn't have to contribute to the bill.
A system to cap carbon emissions presents both an opportunity and potential pitfall for farmers. Fred Yoder of the National Corn Growers Association said carbon caps would likely cause increased input costs for farmers. Fertilizer prices -- which track the cost of oil and natural gas and have seen major increases over the past year -- could go up even more under a climate bill, he said.
"Our costs are going to go up even if agriculture remains an uncapped entity -- we will be profoundly impacted by everyone else's carbon," Yoder said. "Really what we are looking for is an offset to bring back some of those extra costs."
The potential boon for farmers in climate legislation would be if they could get payments for their conservation efforts to trap greenhouse gas emissions. Farm groups are calling on Congress to give agriculture a significant portion of offsets in the bill.
"It scares all farmers about viability," Yoder told the panel. "If we're going to go down this road, we have to have some kind of mechanism to offset costs."
The issue of carbon offsets in the bill has caused some anxiety among advocacy groups. Offsets refer to projects that would indirectly cut heat-trapping gases in the atmosphere -- such as funding mass plantings of trees, which absorb carbon dioxide, practicing "no-till" farming or installing equipment to capture methane from animal feedlots. Companies could invest in some of these green-energy projects to offset their own emissions. [More]
No sane farm organization executive or leader would open with any other stance. But the point of climate change efforts is to cause changes in our generation/consumption of energy, which translated into "farmerese" means: expensive hydrocarbon fuels and for most of us, electricity.

The problem with this is that any politically tolerable carbon price, enacted by cap-and-trade or tax, would add mere cents to the price of a gallon of gas. I don’t remember the exact data point, but I recall George Bush railing against Lieberman-Warner by saying that it would add 40 cents to the price of gasoline by the year 2020 (or something like that). At a time when prices were rising by well over a dollar in a matter of months, this was not a particularly frightening statement.
But people hate the idea of expensive gas, and it could be the case that even a small potential increase in prices would make it more difficult to pass a carbon price. For this reason, some greens (Dave Roberts, for instance) argue that a carbon pricing system should exempt transportation. I disagree — the idea of pricing is that emission reductions will occur in difficult to predict places, which makes me extremely reluctant to exempt such a large sector of the economy — but I understand where he’s coming from.
But the most important thing to understand about the above is that consumers are far more vulnerable to market-driven swings in the price of gasoline than they are to regulation-driven changes. Any potential government-engineered gas price increase pales in comparison to the spike markets delivered in 2007 and 2008. Given the macroeconomic fallout from that spike, we should look at overwhelming autodependency not in terms of the threat it poses to environmental legislation, but in terms of the danger it represents for economic stability and consumer welfare. Whatever happens to carbon legislation, there’s a strong case to be made that other policies should be adopted to reduce American dependency on oil. You all know my preferred options — an increased gas tax, a move toward congestion pricing, new investments in rail and transit, and adjustment to incentives that encourage autocentric development patterns. [More]
I heave learned to hold the farm lobby in great respect.  If any sector could pull off opting out of the cost of emissions control or even make a buck doing it, it would be us (and the lobbying industry, of course). But the result will be to once again make farmers an "exception".

We've obtained special status on our income taxes for years.  Many of us get unique subsidies for keeping our body temperature close to 98 degrees.  Our real estate is valued by special rules.  Our trucks get special license plates.

No wonder we have people stacked ten-deep wanting to be farmers.  Who wouldn't?  Our specialness can be acquired simply by renting some ground and filing a Schedule F. 

So the one effect will be even more competitive pressure from within and without.  And because the any benefits will be unearned by our own efforts, the curious phenomenon of higher income and lower margins will repeat itself, I think.

Say we get really, really "lucky" and end up with $100 per acre payments for piddling efforts on our part, or even continuing to do what we do now (i.e. no-till).  That payment will be targeted immediately by input suppliers (no-till machinery makers, for example) and landowners (since it accrues to acres, even if paid to operators).

Voila! Since if previous margin m had been the difference of income i and costs c, the equilibrium margin will be the same only derived by (i + 100) minus (c + 100) which of course equals m.

However our margin percentage has dropped from m/i to m/(i + 100).  Admittedly, this is over-simplified, and would take a couple of years to settle out, but as we have found with the doubling of corn prices, way too soon we're operating for similar margins (unless we own the ground and can keep that portion of the increase).  As margin rates decrease risk rises, since you are spending more dollars to make one.

Fixed income increases flow to the scarcest inputs, which is usually land cost.  Consequently, I am figuring any "exceptionalist" outcome for farmers will almost immediately reward landowners and vendors.  It will also reward risk takers who had bid over the market either for rents or ownership of land.

In short, we are making all the right moves at the farm organization level to select for aggressive consolidators.  Oddly enough, the most successful of these rarely are seen in organization meetings. How smooth are guys who can get the folks they are shouldering out competitively to smooth the path for their own replacement?

Our "exceptional" status could come to mean that there will be exceptionally few of us.


Tim said...

John my largest problems with carbon "taxing" are one,it is punative against those who generate "new wealth" from natural resources including food and energy,and second it will produce a large increase in the cost of both, which will produce a rationing effect on the economy, that will affect all but the wealthy and increase the income gap between classes that you have discussed in previous posts.

John Phipps said...


Whether it is c&t or carbon tax, the end result will looks as you suggest: expensive hydrocarbon energy. And such "punitive" measures are how you curb undesirable actions like burning too much gas.

If you don't think the problem (GHG's) is something to worry about all solutions are awful, simply because they cost mucho for no upside.

So there are two issues: 1) Are GHG emissions a real problem we need to address? and 2) What is the least economically burdensome approach to mitigate the problem?

I favor a revenue-neutral carbon tax rebated against payroll taxes. In other words, $5 gas and no FICA. I think we'd learn to love smaller cars, no-till, and wearing sweaters if we could be sure SS was solvent and our fatter after-tax income more than covered our new fuel costs for the vast majority of Americans.

As fuel becomes more expensive good things happen for agriculture. For one, ethanol comes closer to making sense (and profit).

But you are right. If you don't buy into climate change, no GHG solution makes any sense.