Energy Consumption in
U.S. Agriculture
John A. Miranowski
Professor of Economics
Iowa State University
Introduction
• Premise that energy consumption is driven by
real energy and relative prices
• Agriculture may be more vulnerable to energy
disruptions than to price shocks
• Government policies provide incentives and
disincentives for energy consumption
Objectives
• Establish farm energy consumption baseline
• Evaluate responsiveness of producers to real energy and other
relative price changes
• Assess vulnerability to energy supply disruptions
• Consider energy efficiency of farm production and other sectors
• Discuss roles of technology, farm policy, and rural energy
security
Current Farm Energy
Consumption
• Direct energy – diesel, gasoline, LP gas,
natural gas, and electricity
• Indirect energy – fertilizers and
pesticides
Total Energy Consumed in US Farms in 2002
Total = 1.7 Quadrillion BTUs
Pesticides
6%
Natural Gas
4%
LP Gas
5%
Fertilizers
28%
Gasoline
9%
Electricity
21%
Diesel
27%
Changes in Farm Energy
Consumption over Time
• Diesel fuel and gasoline
• Electricity
• Fertilizers and pesticides
Total Energy Consumed on US Farms, 1965-2002
3
Electricity
LP gas
Quadrillion BTUs
Natural gas
2
Diesel
1
Gasoline
Fertilizers and
pesticides
0
1965
1970
1975
1980
1985
1990
1995
2000
Energy Consumption and Farm
Production Expenditures
• Direct energy consumes twice as many
BTUs as indirect energy, but
• Direct energy accounts for 5-7% of
farm expenditures
• Indirect energy accounts for 9-10% of
farm expenditures
Direct and Indirect Energy Consumed on U.S. Farms, 1965-2002
2
Quadrillion BTUs
Direct energy
1.5
1
0.5
Indirect energy
0
1965 1970 1975 1980 1985 1990 1995 2000
Energy Expenditures in Crop and
Animal Production
• Field crop production
• Animal production
• Specialty crop production
• Irrigation
Direct Energy Expenditure per Dollar Expenditure and
Output in 2002: Major Crops
0. 058
Corn
0. 048
0. 053
0. 052
Soybean
0. 052
Cotton
0. 060
0. 070
0. 069
Wheat
0. 064
Rice
0. 092
0
0.02
0.04
0.06
0.08
0.1
Direct Energy Expenditure per dollar of
Total Expenditure
Direct Energy Expenditure per dollar
Output
Direct Energy Expenditure per Dollar Expenditure and Output in
2002: Livestock
Hogs
Poultry
Dairy
0.032
0.017
0.028
0.023
0.040
0.038
Beef cattle
0.000
0.078
0.020
0.020
0.040
0.060
0.080
Direct Energy Expenditure per dollar of Total Expenditure
Direct Energy Expenditure per dollar Output
0.100
Direct Energy Expenditure per Dollar
Expenditure and Output in 2002:
Speciality Crops
0 .0 2 9
0 .0 2 1
Fruits/tree nuts
0 .0 3 1
0 .0 2 1
Vegetables
0 .0 3 4
0 .0 2 7
Nurseries
0
0.02
0.04
0.06
0.08
Direct Energy Expenditure per dollar of Total
Expenditure
Total Energy Expenditure per dollar output
0.1
Average Irrigation Costs Per Acre – by
energy source
63
70
60
33
40
45
50
32
19
30
19
Dollars per acre (current dollars)
80
20
10
0
US
California
Nebraska
Texas
Arkansas
Idaho
Total
Electricity
Natural Gas, LP Gas, Propane and Butane
Diesel and Gasoline
37
Energy Consumption by
Production Region
• Fuel consumption in field crop producing
regions – Corn Belt, Northern Plains,
Southern Plains
• Electricity consumption – Pacific
• Fertilizer – Corn Belt
• Potential indicators of vulnerability?
How do Producers Respond to
Energy Price Increases?
• What is happening to nominal and real
energy prices?
• What aggregate response to a real
energy price increase would we
anticipate from producers?
• What other substitution opportunities
are available to producers?
Real Prices of major fuel sources
1970-2002 (1996 dollars):
2.5
2.0
1.5
1.0
0.5
0.0
1970 1974 1978 1982 1986 1990 1994 1998 2002
Diesel (dollars per gallon)
Gasoline (dollars per gallon)
Electricity ( *10 cents per kWh)
Natural Gas (cents per cubic feet)
Relative Input Price Ratios
4.00
3.00
2.00
1.00
0.00
1970
1974
1978
1982
1986
1990
1994
1998
Capital/Fuels
Chemicals/Fuels
Fertilizers/Fuels
Labor/Fuels
2002
Own Price Elasticities and Allen
Elasticities of Substitution
• Own price elasticity of energy - -0.60
• Own price elasticity of fertilizer - -0.66
• Own price elasticity of pesticides - -0.53
•
•
•
•
Energy/capital substitution elasticity - 1.13
Energy/fertilizer - 0.60
Energy/pesticides - 0.70
Energy/labor - 0.59
Off-Farm Energy Consumption in
Agriculture Processing
• Energy consumed in food processing
– 1.4 Quad BTUs in 2001
– 50% fuel and 50% electricity
• Energy consumed per dollar output
• Consumers demanding more processed and
convenience foods
• Substituting energy in processing for energy use in
households
Energy Consumed (‘000BTUs) per Dollar Shipment
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1968
1972
1976
1980
1984
1988
1992
1996
2000
Food mfg
Starch and v e ge table fats and oils mfg
Sugar and confe ctionary product mfg
Fruit and Ve ge table Pre se rv ing and spe cialty food mfg
Dairy Product mfg
M e at Product mfg
36
What is Happening to Farm
Energy Efficiency?
• Is agriculture a profligate user of
energy?
• Are producers improving energy
efficiency over time?
• How does energy efficiency in
agriculture compare to other sectors?
Farm Productivity and Efficiency
• 2% annual productivity growth in AG
• Total inputs flat, but productivity and
output growing
• Major inputs declining except energy
and chemicals after early 1990s
• Partial productivity measures all
Energy Intensity (BTUs consumed per dollar) in US Agriculture,
Food Manufacturing, Industry, and U.S. Economy
Agriculture
Industry
US Economy
Food Manufacturing
('000 BTU/ 1996 $)
30
25
20
15
10
5
0
1970
1974
1978
1982
1986
1990
1994
1998
Rural Energy Security and Rural
Disruption Costs
• Energy disruption costs at points in production and
processing
–
–
–
–
–
–
–
Specialty crop harvesting
Crop processing
Animal production
Animal harvesting
Dairy production
Fertilizer production
Ethanol production
• Lack seasonal energy use data to assess such
disruption costs
Information and Biotechnology
Impacts on Energy Efficiency
• Continuation of productivity growth
• Substitute information for other inputs
• Substitute biotechnology for fertilizer,
pesticides, energy, and pharmaceuticals
• Substitute information and knowledge for
traditional breeding and husbandry
Integrating Farm Energy
Consumption and Production
• Wind energy offers opportunities for
integrated on-farm production and
consumption
• Bio-fuels have more limited potential and
scale problems
• Solar offers potential power for livestock
watering, electric fencing, and lighting in
more remote areas
Policy Impacts on Farm Energy
Consumption
• Farm policy may impact farm energy use
• Rural energy security policy concerns
• Farm Security and Rural Investment Act of 2002
– Renewable Energy Loans and Grants
– Energy Audits and Renewable Energy Development
– Technical Assistance to Develop Renewable Energy
Resources
– Biofuels Research and Development
Conclusions and Implications for
Farm Energy Use
• Important consumer of direct and indirect
energy in crop and animal production
• Producers do respond to real energy price
incentives and do make input and output
adjustments
• Vulnerability to energy supply disruptions may
be critical in specific time periods
Conclusions and Implications for
Farm Energy Use (cont.)
• AG is energy efficient relative to other
sectors and improving in response to
real price increases
• Farm and rural policies do have an
impact
on rural energy consumption
Thank You!
Supporting Slides
Energy’s Share of Farm Production Expenses
18%
16%
Total energy
14%
12%
10%
8%
Indirect energy
6%
4%
2%
Direct energy
0%
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
Direct Energy Expenditure per Dollar of Output in
Major Agricultural Crops:
35%
30%
25%
20%
15%
10%
5%
0%
1995
1996
1997
1998
1999
2000
2001
Corn
Soybeans
Wheat
Cotton
Grain Sorghum
Rice
2002
2003
Direct Energy Consumption in top 5 NASS Production Regions
5.00
4.50
Billion 2002 Dollars
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1965
1970
1975
1980
Lake States
Northern Plains
Pacific
1985
1990
1995
2000
Corn Belt
Southern Plains
2005
Billion 2002 Dollars
Indirect Energy Consumption in top 5 NASS Production Regions
10.00
8.00
6.00
4.00
2.00
0.00
1965
1970
1975
1980
1985
Lake States
Corn Belt
Southeast
Pacific
1990
1995
2000
2005
Northern Plains
Energy Consumption in Food Processing
(Trillion BTUs)
1600
1400
1200
1000
800
600
400
200
0
1970
1980
1992
1995
2000
2001
Fuel Btus
566
462
555
580
597
777
Electricity Btus
525
321
776
858
645
712
1.8
Nominal Prices of major fuel sources:
1970-2002
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1970 1974 1978 1982 1986 1990 1994 1998 2002
Diesel (dollars per gallon)
Gasoline (dollars per gallon)
Electricity ( *10 cents per kWh)
Natural Gas (cents per cubic feet)
Own Price Elasticity and Input Substitution Elasticities
Input
Land
Labor
Capital
Energy
Fertilizers
Land
-0.28
Labor
-0.27
-0.39
Capital
0.73
0.65
-0.86
Energy
0.35
0.59
1.13
-0.60
Fertilizers
0.20
0.82
0.97
0.60
-0.66
Pesticides
0.08
0.66
0.82
0.70
1.04
Pesticide
-0.53
Indices of Farm Output, Input Use and Productivity
in US Agriculture
1.4
Index (Base 1996)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1968
1972
Total output
1976
1980
1984
Total Farm Input
1988
1992
1996
2000
Total Factor Productivity
Indices of Major Farm Inputs Usage in US
1.8
Index (Base 1996)
1.6
1.6
1.4
1.2 1.2
1.0
0.8
1.0
0.9
0.7
0.6
0.4
0.2
0.0
1968
1972
Capital
1976
1980
Labor
1984
1988
Energy
1992
1996
Chemicals
2000
Partial Productivity indexes in US Agriculture:
1.6
Index Base year 1996
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1945 1950
1955 1960 1965
Output/Capital
Output/Energy
1970 1975
1980 1985 1990
1995 2000
Output/Labor
Output/Chemicals