USDA on energy and ag:
Why are energy prices important for agriculture?
There are three primary reasons:
Energy-related inputs—such as gasoline, diesel fuel, electricity, and fertilizer—are 15 percent of farm expenses. Gasoline, diesel fuel, and natural gas prices paid by farmers are directly influenced by crude oil prices. Electricity prices, while not as directly and immediately responsive to crude oil prices, move up with oil prices over the long term. Natural gas—the price of which is influenced by crude oil, as industrial and commercial users substitute among energy sources—is key to the production of nitrogen-based fertilizer. As seen in the winter of 2000-01, fertilizer prices rose sharply when natural gas prices soared.
Energy prices influence U.S. economic growth, driving domestic demand for food and fiber. U.S. economic growth, while only half as dependent on energy as in the 1970s, is still constrained by restrictions on available energy. There is widespread agreement that low energy prices contributed to the strong growth and low inflation experienced in the 1990s. This growth in turn spurred continually increasing demand for food and fiber products, supporting farm cash receipts.
Energy prices affect the growth of non-oil producing countries, particularly developing economies, which are increasingly important customers of U.S. food exports. Developing countries, which tend to focus on manufacturing, are far more dependent on oil for growth than are developed countries, which rely relatively more on services. China, for example, requires four to six times more energy to produce one more dollar of GDP than the United States. A large increase in energy prices has a significantly negative impact on Chinese growth. (The quick turnaround from the 1997-98 financial crisis was in part due to low crude oil prices.) Slower Asian economic growth from higher energy prices means smaller increases in U.S. farm exports. |
