Sunday, April 27, 2008

Pump Prices Pinch Farms

Pump Prices Pinch Farms

HILLSDALE--With the price of regular gas ranging from $3.54 to $3.77 a gallon as of Thursday--and diesel fuel at nearly $4.70 locally, rising energy prices are rippling through the economy. And nobody is more aware of that than farmers. The problem for farmers is not just the price of fuel, although Eric Ooms, a farmer and the president of the Columbia County Farm Bureau, points out that the cost of filling a 100-gallon tractor tank has gone from $100 to more than $300 over the past couple of years. That's enough for 14 hours of fieldwork. At the same time, he and his fellow dairy farmers are also paying more to have their milk delivered to processing plants, and all farmers--organic or conventional--are paying more for fertilizer. "You come to realize that the whole economy runs on fuel," said Mr. Ooms.

"And I don't think anybody can say it's going to change any time soon." Increased costs for producers are already being reflected in retail prices. "Food prices in general have shown some major increases in the last 45 days," said Todd Erling of the Columbia Hudson Partnership and Hudson Valley Agribusiness Development Corporation.

"I've been going to the same bagel shop since 1995, and when I went in last week they felt compelled to tell me: 'Todd, the prices have gone up.'" The price increases reflect what products are costing retailers, said Mr. Erling, and much of the increase can be blamed on higher surcharges for deliveries. "It's going to go deep," he said. "Unfortunately, when food production prices go up it hits the pocket of every American."

The price of nitrogen fertilizer is up by about 30% over last year, according to Dipper Donahue of Caro-Vail in Niverville, a major supplier of agricultural products to area farmers. But Peter Vail Jr. of Caro-Vail's Salem, NY, outlet attributed those increases less to petroleum costs than to increased worldwide demand for grain. "Energy prices affect [fertilizer] prices, but it's not energy alone," said Mr. Vail. "The demand for fertilizer to grow grain in these countries that have discovered protein, combined with ethanol, has created a grain market that is very bullish." But many fertilizers are actually based on natural gas, according to Mr. Ooms. And petroleum is also used to make many of the pesticides and herbicides used in large-scale farming.

Over the long term, Mr. Erling hopes to see local biofuels production on a scale similar to the small iron foundries that dotted the Columbia County landscape in the early 19th century. A study carried out by his organization found that large-scale production of biofuels would not be cost-effective because of transportation costs, according to Mr. Erling. But he said smaller refineries can be built, and agreements could be worked out in advance between the refineries and local farms similar to those that currently exist between farmers and meat packers, ensuring them of a market for their products. "It's technologically feasible and the market is here," he said. "New York and Pennsylvania together are a larger market for diesel and home heating fuel than Texas or California." Mr. Erling said the area is well suited to such biofuel crop sources as rapeseed, which is used to make canola oil, and soybeans, which can be used as cattle feed even after the oil is pressed out.

Soybeans also have the advantage of being a nitrogen-fixing crop, making them ideal for rotation with corn. "Biofuels are not the silver bullet, but they're one piece of the solution," said Mr. Erling. "Trying to work it out is going to be a challenge. But even if petroleum prices go into a nosedive, it's only a matter of time before we get back into this situation again," he said. To provide more immediate relief from high gasoline prices, Congresswoman Kirsten Gillibrand (D-20th) wrote to President Bush this month requesting that he direct the U.S. Department of Energy to draw down the Strategic Petroleum Reserve by two and a half million barrels of oil per month over the next six months, while suspending purchases over the same period. "These two actions would keep more oil in the market and bring down fuel costs to save consumers money at the pump and provide desperately needed relief to our small businesses and farmers," Ms. Gillibrand says in the letter.

"Inaction could have disastrous, long-term effects on our nation's economy, and the American people's confidence in their government." Ms. Gillibrand has also co-sponsored legislation in the House of Representatives calling on the Energy Department to suspend purchases. She is also co-sponsor of a bill that would allow long-distance rural commuters a tax deduction when the local price of gasoline exceeds $3 per gallon, and another bill calling for an increase in corporate average fuel economy standards.

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