By Brad Haire
University of Georgia

Fuel is an important part of farming, but it’s normally not
considered a major cost to farmers. But, if the United States
invades Iraq, that could change, says a University of Georgia
agricultural economist.

Georgia farmers will soon be entering their fields to plant this
season’s crops like peanuts, cotton, corn and tobacco. And
they’ll be using a lot of fuel to keep their tractors and trucks
and such on pace to get this crop in the ground and grown.

High price

Historically, war in the Middle East sends gas prices soaring in
the United States and around the world.

It also seems that all fingers now point to a U.S.- led invasion
of Iraq – closer to sooner than later. Troops are in place and
ready to go. Some reports say it could happen in a matter of
weeks or even days.

This situation has happened before. And when it did, fuel prices
spiked, said Bill Givan, an Extension economist with the UGA
College of Agricultural and Environmental Sciences.

During the initial phase of the 1991 Gulf War, crude oil jumped
above $40 a barrel, he said. Crude oil is used to produce
gasoline and other fuels.

Volatile

Key price indicators for crude oil are volatile right now. The
Organization of the Petroleum Producing Countries (OPEC) crude
oil prices have danced around $32 a barrel, higher than its
target prices of $22-$28 per barrel, for several months.

West Texas Intermediate oil, U.S. crude oil, is around $36 a
barrel, a level not seen since Oct. 1990, according to the
Energy Department’s Energy Information Administration. Oil
prices are expected to go even higher this go around.

As of the second week in March, national unleaded gasoline
prices averaged $1.686 a gallon. It now costs 54 cents per
gallon more than this time last year to fill up on a tank of
unleaded gas.

Diesel fuel prices are already at record highs. It costs about
58 cent per gallon more than this time last year to fill up on a
tank of diesel, according to a recent survey of service
stations by the Energy Information Administration.

The department predicts that U.S. fuel prices will soon reach an
all-time high.

Razor’s edge

“Normally, fuel costs are not a major input farmers have to
face,” Givan said. But he added the margin of profit now sits on
a razor’s edge for many farming operations. Any increase in any
cost, like gasoline, would cut into an already small margin of
profit.

The costs of some farm fertilizers and chemicals go up as crude
oil prices increase, too, further cutting into profits.

According to a study by the American Farm Bureau Federation,
farmers pay an extra $1 billion in manufactured inputs, such as
fertilizer, electricity and pesticides, for every $3 increase in
the prices of a barrel of crude oil.

But farmers, now, have had several years of depressed commodity
prices and tough times. As a result, most farmers are running
their businesses as efficiently as they can. If they’re not,
Givan said, they’re probably not running at all.

Also, the 2002 farm bill, which was passed early last summer,
will provide some relief for farmers, he said.

“This is a very generous farm bill,” he said. “Even if we have
a depressed farm economy this bill will put money into the farm
economy to pay bills.”

According to the energy department, Georgia and the Gulf Coast
states have the cheapest gasoline, averaging $1.579 a gallon as
of early March. The West Coast has the most expensive unleaded
gasoline, averaging $1.932 a gallon as of the same time.