1. Energy Consumption in U.S. Agriculture John A. Miranowski Professor of Economics Iowa State University

2. 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

3. 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

4. Current Farm Energy Consumption Direct energy – diesel, gasoline, LP gas, natural gas, and electricity Indirect energy – fertilizers and pesticides

6. Changes in Farm Energy Consumption over Time Diesel fuel and gasoline Electricity Fertilizers and pesticides

7. Total Energy Consumed on US Farms, 1965-2002

8. 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

9. Direct and Indirect Energy Consumed on U.S. Farms, 1965-2002

10. Energy Expenditures in Crop and Animal Production Field crop production Animal production Specialty crop production Irrigation

15. 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?

16. 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?

17. Real Prices of major fuel sources 1970-2002 (1996 dollars):

19. 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

20. 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

22. 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?

23. 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

24. Energy Intensity (BTUs consumed per dollar) in US Agriculture, Food Manufacturing, Industry, and U.S. Economy

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. Thank You!

32. Supporting Slides

33. Energy’s Share of Farm Production Expenses

34. Direct Energy Expenditure per Dollar of Output in Major Agricultural Crops:

35. Direct Energy Consumption in top 5 NASS Production Regions

38. Nominal Prices of major fuel sources: 1970-2002

39. Own Price Elasticity and Input Substitution Elasticities InputLandLaborCapitalEnergyFertilizersPesticide Land -0.28 Labor -0.27-0.39 Capital 0.730.65-0.86 Energy 0.350.591.13-0.60 Fertilizers 0.200.820.970.60-0.66 Pesticides 0.080.660.820.701.04-0.53

40. Indices of Farm Output, Input Use and Productivity in US Agriculture

41. Indices of Major Farm Inputs Usage in US

42. Partial Productivity indexes in US Agriculture: