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Proposed Fuel Tax Will Cost U.S. Farmers $420 Million, AU Profs Say
AUBURN, Ala. - A fuel tax proposed by the Clinton Administration will cost U.S. farmers approximately $420 million, $4 million of which would be lost by Alabama producers, say two Auburn University agricultural economists.
Using sophisticated computer models of the agricultural economy, C. Robert Taylor, ALFA/Alabama Farmers Federation eminent scholar; and Patricia Duffy, associate professor of agricultural economics, predicted that farmers in the South will be hit harder by the proposed tax hike than those in other regions. Their research was supported by ALFA and the Alabama Agricultural Experiment Station.
"The South grows more cotton and peanuts, both of which involve more fuel-intensive production practices than crops grown in other regions," Duffy explained. "The production of corn, wheat and soybeans doesn't require as much use of fuel-powered machines."
Clinton's proposed tax hike would increase fuel-related production expenses by approximately 8.7 percent, Taylor's analysis showed. "For each new dollar in tax revenue, farm revenue goes down almost a dollar," he pointed out.
"Production costs could be even higher, depending on how you interpret Clinton's tax proposal," Taylor said. "Clinton's proposal is vague, and if it goes beyond just fuel use, then the economic impacts would be much larger. It's not yet clear whether he proposes to increase taxes on natural gas used for non-fuel purposes."
Natural gas is used in the production of fertilizer, he explained. This is not a fuel use, but it may or may not be included in the tax hike plan. If it is, the cost of fertilizer would also increase.
Slight market adjustments caused when some producers go out of business would increase food prices to a small extent, Taylor said, adding that nationwide food expenditures would increase $34 million a year if the new tax is ratified.
Peanuts and cotton are among Alabama's top cash crops, generating annual revenues of $190 million and $160 million, respectively. Increased fuel expenses would cost the state's cotton producers $13.50 per acre each year, Duffy said. Her computer simulation did not specifically analyze peanut production, but Duffy estimates that peanut growers would face a similar increase expenses.
Full-season soybean production, on the other hand, would cost $1.48 per acre more, she added. Double-cropped soybeans and wheat would cost $1.85 per acre more to produce.
"This is not a big enough hit to drive many Alabama producers out of business, but it will certainly affect profits, and it could be devastating to some," Taylor said.
"In general, young farmers with high debts and farmers who rent their land would be most affected by the fuel tax increase," Duffy said. "The more highly leveraged you are, the more likely you would be to go bankrupt. However, even farmers in the best financial situations would face a significantly reduced chance of achieving economic success."
Duffy's computer model took into account fuel costs associated with crop dusting, tractor and machinery use, as well as hauling, ginning and warehousing. It also factored in interest expense, which would increase after the tax hike to account for higher production costs and the increased need for operating capital.
U.S. livestock producers also would lose money if the fuel tax increase is approved, Taylor added. Nationally, livestock producers would face a net loss of $56 million, with calf production and the poultry and egg industry shouldering the heaviest burdens. Data specific to Alabama is not available.
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News from:
Office of Ag Communications & Marketing
Auburn University College of Agriculture
Alabama Agricultural Experiment Station
3 Comer Hall, Auburn University
Auburn, AL 36849
334-844-4877 (PHONE) 334-844-5892 (FAX)
Contact Jamie Creamer, 334-844-2783 or jcreamer@auburn.edu
by Robyn Hearn
