Senator Kit Bond (R-MO) recently released a statement on the costs of cap-and-trade. This statement was based on a FAPRI study of increased energy costs on agriculture. The statistic quoted by Sen. Bond was an increase of around $11,000 per year. A Kansas City Star online editorial slams the Senator’s statements as patently false. So, what is the truth?
First, the FAPRI results were based on a 1,900 acre representative farm in Missouri. The paper correctly points out that according to USDA data, 87% of Missouri farms were less than 500 acres. In fact, the average Missouri farm is reported at 269 acres. Making some heroic assumptions, they calculate the annual cost for this average farm at around $1,600 or around $137 per month. What they don’t tell you is that this group of farms typically has sales of less than $50,000, so this cap-and-trade increase is a minimum 3% of sales. This is not a percentage of profit, but of sales. Of profit, it would be much higher.
Second, commercial farms produce the lion’s share of production. The group less than $50,000 in sales accounted for only 10.3% of the value of all agricultural output in Missouri. This means these bigger farms produce the most and face the most impact of the increase in energy costs (which is why FAPRI uses that 1,900 acre representative farm…it more closely represents farm characteristics of farms that produce the bulk of agricultural output).
Finally, the smaller farms either tend to be (1) hobby farms or (2) fruit and vegetable farms. In the case of (1), we really don’t care that much about the added cost of cap-and-trade to them because profitability is not generally their concern. In the case of (2), these farms tend to be smaller and more reliant on labor. Thus, cap-and-trade effects are likely to be less on a per acre basis for them anyway.
So, the truth is that Senator Bond probably stretched the statistic used by FAPRI to its limits of usefulness. There are just too many variables that will affect the cost of cap-and-trade on indivudal farms. But, the Kanasas City Star equally stretched its dubious use of USDA statistics as well. The costs of cap-and-trade on agriculture are real and not insignificant as the paper would like you to believe.