Renewable fuel: This dog now hunts

A gas station in Bismarck, N.D., made the news this spring when it had a going-out-of-business sale, pumping gasoline at its wholesale cost of $2.04 a gallon, and its customers lined up for blocks to take advantage of the savings. Waiting in line for two-buck gas? Good grief.

But as we grumble, we in the good ol’ U.S. of A. still play the part of the world’s biggest oil user, burning about a quarter of the total oil consumed, with imports accounting for more than half of all the petro products we use. And global demand for petroleum is only expected to rise, spurred on by the expanding economies of two countries in particular, China and India. As living standards improve in these and other developing nations, oil demand will increase, especially for automobiles, according to the International Monetary Fund.

The IMF forecasts that China alone will be consuming nearly as much oil in 2030 as the U.S. consumes now. Rising incomes in China mean its motor vehicle ownership rate will soar to an estimated 267 vehicles per 1,000 people in 2030, up from just 16 vehicles per 1,000 people in 2002. Read that stat again: from 16 vehicles per 1,000 people to more than 250 vehicles per 1,000 people in 25 years, in China alone. By comparison, the U.S. is forecast to have 843 vehicles per 1,000 people in 2030, up from 812 in 2002.

Here's the kicker: We Americans area key driving force of the expanding economies in China, India and other developing countries. American companies are moving service jobs to India and investing in China, giving workers in these countries more buying power. Wal-Mart, Target and other retailers rely on imports from developing countries to lower costs and attract customers. Of course, we oblige. Who doesn’t like bargains?

Together, we’re doing our part to help encourage the Chinese economy to grow, so they can afford to drive automobiles, which will put further pressure on petroleum demand, driving up the cost of gasoline for you and me at the pump.

Rising energy costs are fast becoming a key competitive issue for American farmers. While other energy users can simply raise their prices or tack on a fuel surcharge, farmers don’t have the ability to pass along their higher costs. As the saying goes, farming is the only economic sector where you buy everything retail (inputs and machinery), sell everything wholesale and pay the freight both ways.

A report by North Dakota State University last winter indicated how the rising cost of fuel and fertilizer is increasingly handicapping farm profitability.

NDSU economists Richard Taylor and Won Koo concluded in their analysis that compared to last year, fertilizer costs will increase about 13 percent, gasoline 28 percent and diesel 55 percent. They figured that the typical producer in North Dakota will spend $15 to $19 per acre more for energy products in 2005, depending on location, cropping and production patterns and actual fuel price increases. The authors point out that higher energy costs affect the bottom line of farms in other ways as well, inflating household living and transportation costs. The report can be found in its entirety online at http://www.ag.ndsu.nodak.edu/capts. Click on the “publications” link, then “Ag Policy Briefs.” See brief #5.

If anything, our $2 gas prices have served as a kick in the pants for a better, more self-reliant energy policy, and renewable fuels figure to play a key component in that. In fact, an Ag Energy Work Group, consisting of movers and shakers in the ag industry, formed a blueprint for action that outlines agriculture’s role in ensuring U.S. energy independence (http://www.bio.org/ind/25x25.pdf). This effort is called “25 by 25” — to have 25 percent of our energy needs met through renewable resources by 2025.

Ever-effervescent ag economist Barry Flinchbaugh of K State is part of this Ag Energy Work Group. He says there are five components needed for renewable energy to work: 1) expensive oil; 2) cheap corn; 3) permanent tax abatements; 4) rigorous enforcement of the Clean Air Act; and 5) an improved conversion ratio (the energy it takes to produce energy). All of these are now in play.

“LBJ used to have a saying about policies he didn’t like, ‘that dog won’t hunt,’ ” says the cigar-chomping Flinchbaugh. “Well now when it comes to renewable energy, this dog will now hunt, and farmers will have a stake in it.” He predicts that there will be an energy platform to some degree in the next farm bill.

We can hope that over the long-term, renewable fuels will indeed be the norm, helping to stabilize and support grain markets and lowering our foreign energy dependency. In the short-term, however, federal lawmakers need to realize the foresight in maintaining a farm program that helps provide farm income stability in an era of increasingly unstable markets and rising energy-driven costs.

Tracy Sayler is an ag writer based near Fargo, N.D.