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For Farmers, Cap and Trade is a Permanent Drought Season

Posted By Nicolas Loris On June 9, 2009 @ 4:23 pm In Energy | Comments Disabled

Economists at The Heritage Foundation’s Center for Data Analysis are digging deeper into the effects of the Waxman-Markey climate change legislation that includes a cap and trade plan to reduce carbon dioxide by 17 percent below 2005 levels in 2020 and by 83 percent below 2005 levels in 2050. Today’s victim: Farmers. Our CDA analysts found that Waxman-Markey would adversely affect farmers in a number of ways:

• Farm income (or the amount left over after paying all expenses) is expected to drop $8 billion in 2012, $25 billion in 2024, and over $50 billion in 2035. These are decreases of 28%, 60% and 94%, respectively.
• The average net income lost over the 2010-2035 timeline is $23 billion – a 57% decrease from the baseline.
• Construction costs of farm buildings will go up by 5.5 percent in 2025 and 10 percent by 2034 (from the baseline).
• By 2035, gasoline and diesel costs are expected to be 58 percent higher and electric rates 90 percent higher.

And for the rest of us, including those of us on fixed incomes and already struggling in these tough economic times:

• The cost of producing everything from wheat to beef will increase. Indeed, the price deflator for private farm inventories goes up over 20 points by 2035. This increase gets quickly translated into much higher food prices for consumers at the grocery stores.

Most of our readers know cap and trade is an energy tax in disguise. The goal of cap and trade is to drive up energy costs so much that Americans use less. But there’s a fundamental problem with this. Just about everything we do and everything we consume uses energy, so even after consumers turn up their thermostats in the summer and down in the winter, consumers are still using a lot of energy. But under a cap and trade, they’ll be paying an exorbitantly high price for it.

Farming is no exception; in fact, farming is very energy-intensive, with fuel, chemical, electricity and fertilizer costs. They have to purchase a lot of equipment and have to construct a lot of buildings. The Heritage Foundation’s CDA estimates that the price of constructing farm buildings will go up by 4.5 percent in 2024 and by over 10 percent in 2034 (from the baseline) solely because of the upward pressure cap and trade puts on energy prices.

The price of tractors– and every other piece of farm equipment you can think of– will increase as well.

Worst of all is what happens to farmers’ net income. Farmers live off their gross income; what they earn in addition to that is their net income or marginal income. Waxman-Markey significantly shrinks farmers’ net income pie. Farm income is expected to drop $8 billion in 2012, $25 billion in 2024, and over $50 billion in 2035. These are decreases of 28%, 60% and 94% from the baseline, respectively.

Waxman-Markey increases the costs of farm inventories, which in turn raises the cost of food sold to the consumer. At first glance, this may appear to be a good thing for farmers. Higher prices equals higher profit. But this would only be true if all other things were equal. That’s certainly not the case here. Higher energy prices hurt the overall economy, which means less demand for all goods, less production, higher unemployment, and reduced income. This overall economic slowdown reduces demand for agricultural goods, too.  And, as we’ve seen above from the charts, a lot changes for farmers; particularly, their overall cost of operations rise and their net incomes fall.

Waxman-Markey’s effect on farmers should raise a red flag for those in the farm belt and will put U.S. agriculture at a tremendous competitive disadvantage if enacted. Consumers will feel the pain as well, not only from the increase in their own energy prices, but increased food prices. And for what? A change in the temperature too small to notice.

For more, check out The Heritage Foundation’s Rapid Response Page [1]

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/06/09/for-farmers-cap-and-trade-is-a-permanent-drought-season/

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[1] Rapid Response Page: http://www.heritage.org/news/cap-and-trade-global-warming-bill.cfm

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