Bonus Subsidy

$1.5 Billion Bonus Subsidy In Emergency Spending Bill Is Unfair, Wasteful Response To Agriculture's Increased Energy Costs

April 26, 2006

Bonus Subsidy: Energy: Agriculture is Resilient

Like the rest of the economy, farmers were hit with energy cost increases in 2005. However, total production expenses increased only 5.6 percent. As USDA noted, "while the effects of rising energy costs are significant, the [agricultural] expenses they affect most still account for only about one-sixth of the farm sector's total costs of production."5

As a proportion of total production expenditures, some crops — such as wheat and feed grains — are more sensitive to energy price rises than others. Also, some regions have higher farm energy costs than others. However, according to the 2002 Census of Agriculture, over 95 percent of farms — more than 2 million of them — reported expenditures for gasolines, fuels, and oils: a broad category of production expenses tabulated in the Census.6 In California in 2002, 96 percent of farmers reported such expenditures, which amounted to $8,000 per farm on average. In Florida, 97 percent of farms reported gasoline, fuel and oil spending, which averaged about $3,400 per farm. In North Dakota, 84 percent of farms reported fuel expenditures at about $6,200 per farm. Clearly energy price increases since 2002 have affected a wide range of American farmers and ranchers, not just those who produce subsidized crops and who are therefore eligible for the bonus subsidy provided in the Senate's emergency supplemental appropriation.

As will be noted below, the bonus subsidy, like the fixed direct payments on which they are calculated, will be directly proportional to a recipient's eligible production — the greater the production, the higher the bonus subsidy. But USDA has found that larger "commercial" farms, which produce most of the farm commodities and consume most of the purchased inputs, utilize several business practices that lower their energy costs. "Nearly 49 percent of commercial farms locked in input prices and 41 percent negotiated price discounts for their purchases. Their businesses are also sufficiently large so that they can employ other management practices that can help reduce the prices they pay for inputs and help mitigate market uncertainties."7

Notwithstanding short-term impacts of increased energy prices on farmers' and ranchers' bottom lines, the USDA's Economic Research Service notes that agriculture has proven resilient to high energy costs: "Energy intensity [total farm output per unit of energy use] in U.S. agriculture has declined over time due to energy efficiency gains and changes in commodities produced" between 1948 and 2002.8

Some proponents of the bonus subsidy provision in the Senate emergency supplemental appropriations bill argue that those particular farmers deserve additional funds because they are unable to pass increased energy prices on to the buyers of their crops. That is true of virtually all farmers and ranchers, however, including those who will be excluded from eligibility for the commodity bonus. For that matter, most wage and salary workers, as well as the households they support, are also unable to "pass along" their higher energy costs. This inability to transfer costs includes millions of Americans earning the minimum wage, or just above or below it.

Household energy costs can also be higher depending on regional location and public transportation options. An EWG analysis of Department of Energy data indicates that the average household in 10 major metropolitan areas paid $402 more for fuel in 2005 than it paid in 2004, but for some metropolitan areas lacking well-developed mass transit, the household cost increase was even greater: Miami (+ $442), Houston (+ $539) and Denver (+$584). All of these increases in household expenditures for gasoline are greater than the $369 that will be paid, on average, to 80 percent of the prospective recipients of the Senate's crop bonus subsidy.

Metropolitan Area Avg. Price of Gas '04 Avg. Price of Gas '05 Extra Yearly Cost Per Driver Extra Yearly Cost Per Household
Boston $1.86 $2.26 $200 $355
Chicago $1.90 $2.32 $225 $391
Cleveland $1.80 $2.22 $218 $385
Denver $1.80 $2.24 $309 $584
Houston $1.71 $2.17 $273 $539
Los Angeles $2.15 $2.49 $193 $349
Miami $1.91 $2.39 $220 $442
New York $1.90 $2.30 $167 $252
San Francisco $2.15 $2.48 $193 $330
Seattle $1.95 $2.36 $213 $400
Average $1.91 $2.32 $221.10 $402.70

Source: Compiled by Environmental Working Group from US Departments of Energy and Transportation data.

Ironically, even higher costs will be paid by rural households with drivers that, on average, drive almost 4,000 more miles per year than their metro area counterparts, and are more likely to drive SUVs or trucks that get poorer mileage. But the bonus subsidy is not targeted to rural households, only a minority of which have agriculture as their primary source of income. Even fewer rural households will benefit from the bonus subsidy that ostensibly aims to ease fuel costs for a narrow group of subsidized crop farms.


5Covey, Ted, Robert Green, Carol Jones, Jim Johnson, Mitch Morehart, Robert Williams, Chris McGath, Ashok Mishra, and Roger Strickland. Nov. 2005. "Agricultural Income and Finance Outlook." Economic Research Service, USDA. AIS-83

6"These expenses include the cost of all gasoline, diesel, natural gas, LP gas, motor oil, and grease products for the farm during 2002. It excludes fuel for personal use of automobiles by the family and others, fuel used for cooking and heating the farm house, and any other use outside of farmwork on the operation." Page A-24 Appendix A, 2002 Census of Agriculture, USDA, National Agricultural Statistics Service.

7Covey, et al., op cit.

8Shoemaker, Robbin, David McGranahan, William McBride. April, 2006. "Agriculture and Rural Communities Are Resilient to High Energy Use." Amber Waves, Vol. 4, Issue 2.