Farmers, agribusiness paying higher prices due to war

A few political pundits — and their numbers appear to grow by the day — have alleged that Americans haven't been asked to make any significant sacrifices during this time of war, at least not to the level that was required during earlier conflicts. We've assumed, for the most part, that it's our God-given right to continue driving gas-guzzling behemoths, and to continue living our lives as we normally would during peacetime.

But the pundits can be assured that sacrifices are being made — and the pressures of war are being felt — back home on the farm, even though the fighting is occurring more than 7,000 miles away. Many farm families have sons, daughters, brothers, sisters, husbands and wives serving in the military, representing the supreme sacrifice of wartime.

Other, more subtle effects of the war also are being felt, as farmers are paying significantly higher prices this year for diesel and propane fuel. The U.S. Department of Agriculture says it's too early to predict the ultimate impact the war with Iraq will have on domestic agriculture or food exports, which totaled $53 billion last year. The Middle East alone accounted for about $2.25 billion.

In addition to the higher energy costs, exports to the Middle East show signs of weakening, dropping by more than 16 percent in January to $164 million from a year earlier. U.S. farmers began to feel the effects of U.S.-Iraq tensions last year, through higher costs for fuel and for fertilizer, which requires petroleum byproducts.

But not all of the cost increases for petroleum can be blamed on the Iraqi conflict. Some of the increase came from higher demand for oil and natural gas due to a particularly harsh winter, says John McKissick, University of Georgia agricultural economist. A strike in Venezuela temporarily halted oil production by America's fourth-biggest oil supplier, forcing fuel prices even higher, he says.

Oil prices actually are dropping slightly, but they're still higher than at this time last year, and farmers probably won't see those decreases in time to make a difference in this year's budgets.

War is adding to costs throughout the agricultural industry. Shipping companies have raised their fees — some by as high as 20 percent in some cases — for fuel surcharges and to cover the increased risk of moving goods during wartime. Insurance companies also are enacting war clauses and disaster provisions that automatically increase premiums on food shipments for exporters.

However, because of continued pressure from cheap imports, the price farmers receive for their products probably won't be raised to help pay for these cost increases, and consumers aren't likely to see higher prices at the grocery store.

In fact, if the war in Iraq is protracted, and the economy continues to sputter, food and apparel prices likely will decline, say economists. That's because suppliers and retailers don't want to be stuck with a backlog of product, especially when consumers already are fearful about spending money.

Food exporters also have watched as their costs have increased, primarily because of this past winter's demands for oil and current war-related events. Private food businesses are competing for less freighter space and paying more because the government has contracted with many shipping firms to move material and food needed for war.

Even though victory in war will help in the short-term by stabilizing oil prices, long-term uncertainties will remain, says agricultural economist McKissick. These uncertainties could have an impact on food production and shipping costs, he says. Uncertainties such as: Will the war lead to more terrorist attacks in the United States? Is America's food supply vulnerable? How long will U.S. forces have to stay in postwar Iraq?

“There is great uncertainty,” says McKissick. “And uncertainty is no friend of the economy, whether you're talking about food or the general economy.”

Farmers also will be involved in Iraq's postwar reconstruction efforts and already are helping to feed the war-torn country's people, says Secretary of Agriculture Ann Veneman. A shipment of wheat and rice which recently left the Gulf Coast for Iraq will feed 4.5 million citizens of Iraq for a month, says Veneman.

The United States also is providing $260 million to the World Food Program, an agency of the United Nations.

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