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Essay on How high energy and fuel costs effect small businesses
Higher energy costs in the 1970s prompted all sectors of the U.S. economy to increase energy efficiency. Agricultural producers responded by making tradeoffs—replacing more expensive fuels with less expensive fuels, shifting to less energy-intensive crops, and employing energy-conserving production practices where possible. Energy intensity defined as energy consumed per unit of total output—has steadily declined over time due to gains in energy efficiency in the agricultural sector, and this trend is likely to continue.
Nominal energy prices have been steadily increasing, although inflation-adjusted energy prices have remained largely unchanged until recently. In the agricultural sector, energy expenditures for gas, diesel, electricity, and other inputs have increased over time and vary by major commodity produced. However, the U.S. Department of Energy expects the prices of crude oil and gas to decrease in 2006-07 by roughly 5 and 3 percent, respectively, but expects the price of natural gas to rise by over 6 percent.
Rural communities face somewhat different issues associated with increases in petroleum and natural gas costs. As energy prices rise, so do household costs for transportation and home heating. Rising fuel costs also could discourage people from vacationing in or moving to rural areas, particularly remote areas far from major services and employment centers. Because rural households tend to have higher travel expenses—simply because they travel longer distances—they are more likely to be affected by increases in gas prices than urban households.
Direct energy consumption in the agricultural sector includes use of gas, diesel, liquid petroleum (LP), natural gas, and electricity. Indirect energy use involves agricultural inputs, such as nitrogen fertilizer, which have a significant energy component associated with their production. Since 1992, direct fuel and electricity expenses for U.S. farms have averaged around 7 percent of total operating costs........
