An estimation of the potential impact on Georgia's agribusiness economy of higher energy costs predicted under the cap and trade provisions of H.R. 2454
Kane, Sharon P.
McKissick, John C.
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The debate surrounding H.R.2454, "Cap and Trade," continues to raise questions as to its potential impacts on the nation’s agricultural sector. The American Clean Energy and Security Act of 2009, H.R. 2454 is designed to reduce global warming by gradually reducing covered greenhouse gas (GHG) emissions. According to some estimates, the legislation could have potentially significant impacts on agriculture and other energy-intensive sectors in the economy through higher energy prices. With a large part of agricultural production costs tied to energy prices (for example, for fuel, irrigation, feed, and fertilizer), several studies have attempted to estimate the economic impacts on the agricultural sector. However, these studies are limited in that their analyses consider only impacts on agricultural production costs with no focus on the total agribusiness sector including food and fiber processing. The estimated impacts of the production-based studies vary with the respondent’s perspective and the assumptions made about such variables as gains in energy efficiency, reductions in energy consumption, the efficiency of the projected off-set market, and the relative costs of emissions reductions versus permit prices. However, there is general consensus on both sides of the debate that implementations of the provisions of H.R. 2454 will result in higher energy prices. Those expectations are confirmed in findings by the U.S Environmental Protection Agency (EPA) and form the basis of research completed by the U.S. Department of Agriculture (USDA). At present, although production agriculture is not subject to the cap in greenhouse gas emissions, many of the industries that supply inputs to the agricultural production sector and those that process agricultural products are subject to the caps. Thus, there is general consensus that passage of the legislation will impact agricultural production costs at the national and state levels. However, differences across the U.S. as to production costs, crop and livestock commodity mixes, production practices, and potential commodity markets have led several studies to conclude that the economic impacts of H.R. 2454 would not be uniform across all states. The nature of Georgia’s agribusiness economy suggests that increases in agricultural production costs will have impacts that differ from the national picture. For example, Georgia’s large livestock industry, particularly poultry, will not have the option of generating revenues from carbon offsets. In addition, the fact that fuel represents a larger share of farm expenses for Georgia’s farmers when compared to the average U.S. farmers will also result in different impacts for Georgia’s agribusinesses. Higher energy prices are also expected to raise the costs of feed, animal slaughtering, processing, refrigeration, and retailing, all large components of meat and milk production expenses. With higher expenses for energy-dependent inputs, H.R. 2454 is likely to impose a higher burden on Georgia’s farmers than at the national level. Given the uncertainty as the exact impact of H.R. 2454 on production agriculture, the CAED used an input-output model (IMPLAN) to estimate the likely impacts of each one percent change in agricultural production on Georgia’s agribusiness economy. The results indicated that for every 1% decline, Georgia’s agricultural production sector would contract by roughly $215 million and 1,700 jobs each year. When combined with first-line agricultural-related processing, the economic impact of a 1% decline in food and fiber production would mean a $650 million decline in output and a loss of slightly more than 3,500 jobs as compared to the 2008 level of economic activity. Since these calculations are linear, the estimated results can be applied to any other changes in production levels. For example, a 5 percent in agricultural production would mean that Georgia’s economy would shrink by $3.25b and 17,500 jobs while a !0% decline would cause the economy to decline by $6.5b and 35,000 jobs. While the reality is that producers will likely change production practices as input costs change and that commodity prices will rise to reflect higher production costs, the full scope of the economic impacts on agricultural production and the agribusiness industry remain unclear, especially at the state level. The National Association of Manufacturers (NAM) predicted that higher energy prices will cause significant declines in Georgia’s manufacturing sector by 2030. They predicted that those impacts would be felt in the food and beverage processing industry, textile and apparel manufacturing, and pulp and paper manufacturing. For food processing and paper manufacturing industries, output declines of 1.9% to 2.1% and 6.6% to 7.2% respectively are projected by NAM. Using these projections from NAM for the food processing industry, the CAED estimated that the direct and indirect impacts on Georgia’s economy are estimated to be between $1.21 and $1.33 billion annually. The corresponding impacts computed by CAED for the declines projected by NAM in the paper manufacturing industry range from $1.15 to $1.28 billion per year. Based on the NAM projections, the CAED estimates are that the employment base for Georgia’s agribusiness sector will shrink annually by 4,000 - 5,000 jobs due to the decline in the food processing industry and a similar number from declines in the paper manufacturing sector. With Georgia’s agricultural production so heavily dependent on energy-intensive inputs, emissions control will impact agricultural production and those industries that depend on that sector for inputs. While it is widely acknowledged that the legislation will create both benefits and costs to various groups and sectors, unlike the picture presented for the average national farmer, Georgia’s agribusiness sector, especially its large poultry industry, will not be able to reap some of the benefits from H.R. 2454 and, therefore, will show different net effects from the legislation. These impacts would result in reductions in output and lost jobs based on current economic impact models of Georgia’s economy.