Energy Costs and Agriculture

Publication Date: April 2001

Publisher: Library of Congress. Congressional Research Service

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U.S. agriculture is not an especially energy-intensive industry, but energy does account for about 6% of farm production costs. (Mining, including oil and gas extraction, has energy expenses of about 10%, while all manufacturing is at about 2% -- see 1997 Economic Census, and 1999 Annual Survey of Manufactures. U.S. Census Bureau). Additionally, farming is a highly mechanized industry and requires timely energy supplies at particular stages of the production cycle in order to achieve optimum yields. A substantial part of energy use by agriculture is indirect -- embodied in the chemicals applied and machinery used on farms.

Although there are many kinds of farm operations performed in the different types of farms, nearly all apply technologies that use either a petroleum product or electricity. Recently, dramatically higher natural gas prices have increased farm energy costs directly, and indirectly through farmers' use of fertilizer. Nevertheless, the relative contributions of energy types vary distinctly, if not dramatically, by type of farm and product.

The impact of possible oil and/or electricity price rises is potentially greater on agriculture (especially for field crop production) than on most other sectors, given the dependence by farming upon petroleum and electricity, and limited scope for fuel switching. It is to be expected that farmers will, as they have in the past, reduce energy use to ease the cost impact of price rises. A sustained increase in energy prices could have an impact on consumer food prices as higher costs are passed on through the food production/processing industry.

Continued low commodity prices in the farm economy exacerbate the problem of higher energy costs. In response, legislation has been introduced in Congress to assist farmers and other industries in dealing with increased energy costs, including emergency loans and encouraging alternative energy sources.