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Climate law: boon or bust for farms?

Greenhouse gas emission legislation will be either a boon to agriculture or a nightmare to farmers and ranchers.

“We’ve heard from two ends of the spectrum today,” said Steve Verett, executive vice president, Plains Cotton Growers, Inc., as he and other commodity and farm industry spokesmen summed up presentations at the Texas Ag Forum in Austin, Texas.

Verett said discussions over the course of the day ranged from positive to negative for agriculture. “That leaves us in a quandary. It’s difficult to see whether it will be good or not.”

Many farm commodity representatives voiced concern about legislation which would create a cap and trade system for carbon emissions.

Some economists predicted that cap and trade would provide new sources of income for agriculture and that final analysis will show an advantage, even with higher production costs.

Several issues broached little debate. Economists, farm group representatives and those involved in the politics of climate change legislation agree that cap and trade, as well as other legislative fixes for environmental concerns, will mean:

• Higher costs for consumers with both energy and food prices rising

• Higher production costs for farmers and ranchers, particularly for fertilizer and energy

• Less land devoted to production agriculture and more acreage planted in trees or conservation uses.

Burl Carraway III, program manager for Sustainable Forestry and Economic Development with the Texas Forest Service, said timber owners may benefit from cap and trade, but the details will make the difference.

Carraway said woodland owners currently are receiving payment for carbon sequestration in Texas, where the Texas Forest Service serves as the official verifier. “We just finished the first verification pool in Texas,” he said. That pool included 129 landowners and 14,000 acres, from which more than 269,000 metric tons of carbon dioxide equivalent was signed up. “We verified 210,000 metric tons,” Carraway said.

Income, based on $5 per carbon credit unit, came to just over $1 million. After fees were assessed, landowners received about $580,000, about $3000 per landowner.

“Returns depend on the market, the species and the location,” Carraway said. Credit price has dropped to only $1 but is as high as $20 per credit in Europe.

Carraway said the way regulations are written in cap and trade legislation will determine how widely landowners accept it. Long-term contracts will reduce participation, he said. “We prefer sort-term contracts.”

Bruce McCarl, regents professor and distinguished professor of agricultural economics at Texas A&M University, said if carbon prices remain low agriculture will lose money with cap and trade. “As carbon prices go up, agriculture producers are better off. Consumers are worse off because commodity prices will rise,” McCarl said, as farmers divert land from food to fuel. “I think agriculture should support cap and trade.”

He said livestock would be at a disadvantage with higher energy costs and higher prices for feed grains. Higher prices for crops, however, will offset rising energy prices and a volatile fertilizer market. For irrigated farms, “energy bills could be quite high.”

Justin Baker, a research analyst for the Center on Global Change and Climate Change Policy at Duke University, said policy is “moving faster than science,” but said a shift in demand for energy crops and a shrinking agriculture land base could favor farmers as they capitalize on higher commodity prices. They also may tap into new revenue sources such as biofuels and carbon sequestration.

“The offset markets will drive up agriculture prices,” he said.

Baker offered four scenarios of carbon pricing possible under cap and trade legislation. Two would set prices at a constant, either $15 or $30 per unit. The other two would initially set carbon prices at those rates but rates increase over time.

“Agriculture and forestry could serve large roles in carbon mitigation in the United States,” he said. “Farmers come out on top with all four (pricing) schemes. Agriculture will benefit from climate legislation through new opportunities.”

He agreed that livestock would be less likely to benefit because of higher fuel and feed costs.

Farm interests beg to differ.

“Agriculture will feel the impacts of greenhouse gas legislation,” said Allison Specht, economist with the Economic Analysis Department of the American Farm bureau.

Costs will go up, she said. Fuel and fertilizer prices will lead the way, but producers should also expect cost increases for chemicals, custom services, lubricants and electricity. “EPA’s modeling suggests that allowance allocations and lower early targets mean modest increases in energy prices in the early years, but rural areas could see higher rates. Bigger price increases come later, as… targets get tougher and allowances are scaled back.”

She said biomass and wind come out favorably in the new Renewable Energy Standards. She said coal will be much more expensive with clean coal technology. Specht said preliminary analyses of agricultural inputs show corn production costs increasing by 9.4 percent by 2020. Soybeans inputs will climb by 5.3 percent, wheat by 9.4 percent and cotton by 4.8 percent. Grain sorghum production costs will increase 8.3 percent.

Livestock producers face significant cost increases, too.

Cow-calf operators could see production costs jump 8.9 percent; dairy goes up by 9.3 percent; and hog producers will see a 5.3 percent increase.

She said many of EPA’s assumptions are “unrealistic.”

Conversion of farmland to forests also concerns Farm Bureau analysts. “By 2050 we’ll have 50 million acres in trees,” Specht said. “Half of those will be new trees. Where will those acres come from?

“A low carbon economy comes with tradeoffs.”

“We see a lot of fear as cost of production increases,” said David Gibson, executive director, Texas Corn Producers Board. He said the fuel versus food debate of two years ago could be back. “But when commodity prices went down, food prices did not,” he said.

He also expressed concern for increased forest acreage. “What happens to the agriculture infrastructure?” He noted that when the Conservation Reserve Program took a significant number of acres out of production, rural communities lost some businesses.

Bobby Nedbalek, Texas Farm Bureau, said farmers and ranchers are “using the best systems they can based on available rainfall and soils in their areas. Making changes will be costly and we don’t need any more regulations.”

L.G. Raun, El Campo, Texas, rice producer, said higher production costs would ruin the Texas rice industry. “A 20 percent to 50 percent cost increase from cap and trade legislation would push production costs to $221 an acre. If it goes up that much, we will not grow rice in the United States. Production agriculture does not have the ability to pass along increased costs.”

Raun would prefer a carbon tax. “If we did that in conjunction with a baseline, then we could see what the increase will be for agriculture and subsidize it.”

Raun said rice would get no significant benefits from a cap and trade policy, but he pointed out that rice offers environmental benefits, including wildlife habitat and improved water quality.

“We return water we use at a higher quality than when we get it,” he said. He would like to see legislation that would substitute carbon credits for other environmental benefits.

“Now, we can’t support climate change legislation that would export farming and ranching to other countries.”

Verett said climate change is like “most complicated issues. The more you know about it, the more difficult the solution seems.” He said agriculture should be past the point of arguing whether or not global warming is real. “It’s not productive to say it’s not happening,” he said. “Now we have to figure out how to find a solution so we can survive.”

He hopes Congress takes time to study ramifications of climate change laws. “Once they get it rolling, it better be right,” he said. “I hope legislators understand the need for caution.”

Ross Wilson, Texas Cattle Feeders, said from a livestock perspective, climate change legislation is “a nightmare. Very little good will come from this legislation. Unfortunately, I think it will pass.”

He said technology to capture methane gas from a feed yard does not exist. “I see nothing but higher operating costs for the beef cattle business and it’s not likely to benefit other livestock either.”

McCarl said the legislative impetus likely will slow down when it gets to the U.S. Senate. “I don’t think it will pass this year,” he said.

Texas Commissioner of Agriculture Todd Staples said the act would not be good for the country and not good for Texas. “It’s our responsibility in Texas to maintain focus,” he said.

Staples said more than 59 percent of jobs created in the United States from December 2007 through December 2008 were created in Texas, due in part to the state’s favorable tax structure and regulatory environment.

Agriculture plays an important role in the Texas economy, accounting for 9.5 percent of the gross product. Cap and trade legislation, he said, would push farm and ranch production costs up as much as 50 percent. “We are concerned for agricultural production. I think cap and trade is bad for the United States and bad for U.S. agriculture.”

He said EPA seems to be moving forward without “knowing exactly what emissions need to be controlled.

“This is an issue we have to deal with. Agriculture has a responsibility and we need to determine how to exercise that responsibility.”

He said goals in any climate change legislation should be consistent. “Leaders need to consider the consequences of their proposals.”

The downside, he said, is potential reliance on foreign countries for our food supply. “We need to find healthy ways to attack the issue.”

Staples said Texas has several initiatives in place to address climate change without burdensome costs to consumers or agriculture. “Agriculture is doing its part,” he said.

“We do not need to leverage ourselves but do things in a way to continue domestic agriculture without increasing the cost of production.”

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